The economy has not seen this kind of sector dispersion in sector returns since 2000. The gap between technology and energy is almost 70% — an enormous signal of the winners and losers in this economy. With $11-12 billion flowing into tech ETFs so far this year, ETF Trends CIO and Director of Research, Dave Nadig, spoke with Yahoo Finance’s Akiko Fujita on “The ETF Report,” to go over the latest inflows into ETFs.
As far as where the opportunities lie, Nadig explains how the money has been chasing a few small pockets – namely the tech market. People are tracking the performance they’ve seen, based on the recovery play strategies.
Consumer discretionary funds have had some decent flows as well. It’s the home of online shopping and similar facets. More interestingly, however, Nadig explains how energy is actually down 46% for the year but has still had around $5.5 billion in inflows.
Nadig continues, “There’s an interesting combination of people trying to make these tactical rotation plays into what they think is going to work, but at the same time, trying to buy the dip.”
As far as the strategy moving forward, Nadig explains how sector investing is an interesting corner of the market, as it’s where tactical trading meets longer-term investing, as it’s used by a lot of financial advisors to help smooth out there market exposure.
That in mind, Nadig believes thematic ETFs are easily the most exciting corner of all of this. These are the ETFs that break the traditional sector barrier to match up with a particular theme in the markets. This could apply to various areas, such as health and genomics, where Covid-related concepts (such as potential vaccines) are being acted upon, let alone the very popular Direxion Work From Home ETF (WFH), which combines things from the retail and tech space.
If It’s So Volatile, Why Not Retire?
To switch gears over to retirement investing, given the volatility in the market as of late, Nadig points out some thoughts on this sort of forward-thinking investing to consider. There are actually new products coming to market that extract income from the equity markets in different ways.
Here, Nadig points out the Nationwide Risk-Managed Income ETF (NUSI). It simply buys the Nasdaq-100, and then hedges some downside risk and sells calls on the long position to generate premium income. It throws off just under 8% a year and manages your downside risk with puts. This takes the normal, very volatile index, QQQs, and turns them into a consistent long term income generator.
As far as looking at asset allocation, in preparation for retirement, Nadig notes how the yield is obviously what those looking to retire are hoping to achieve. At the same time, there’s total performance. Many products are designed to change their returns into an income stream.
If there’s a good ten years before it’s time to consider retiring, that’s the accumulation phase, which is essentially the basic math to weigh risk vs. reward. It can still be challenging. A 60/40 portfolio in 2020 would not look the same twenty years ago. This is especially the case when one can project the inflation rate on the fixed-income portion to be zero, let alone negative if an inflation spike takes place.
As Nadig continues, with this in mind as to why people are pushed more towards equity markets, “A lot of these products that manage that risk will become attractive.”
For more market trends, visit ETF Trends.