For this week’s “ETF Report” on Yahoo Finance, with host Alexis Christoforous, ETF Trends’ CIO and Director of Research, Dave Nadig, was on hand to go over a variety of areas concerning the market, including rising interest rates, inflation, precious metals, and the continued struggles over a potential bitcoin ETF.
Starting with rising interest rates and the possible rise of inflation, Nadig feels the rising growth and earning expectations may be working for investors as far as positioning portfolios and other preparations. However, it is important to recognize that inflation may be here, but it may not be hitting the CPI. Looking at commodities, which drives inflation, it’s up quite a bit.
Nadig continues, “Inflation is here. It will eventually show up in headlines CPI, but we need to really pay attention to the core of inflation: food, energy, and commodities. What I’m hearing from a lot of financial advisors is that’s how they’re repositioning their portfolios. They’re looking for that kind of core commodity exposure.”
The “consistent flow into equities tends to draw volatility down,” @ETFtrends‘ @DaveNadig says. “I wouldn’t say it’s a trap, but if you’re focused on risk management, I would stay focused on risk management, … and I wouldn’t just get sucked in with the fear of missing out.” pic.twitter.com/JAHsP5Abom
— Yahoo Finance (@YahooFinance) February 16, 2021
As far as using commodities as a hedge against inflation, as well as looking to commodity ETFs to highlight, Nadig wants it to be clear that the market is a part of a very strong risk-on environment currently. Looking at gold, specifically, this is not the best time for it, as reliable as it tends to be.
Instead, Nadig is a bigger fan of longer-dated commodities such as the Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD), which looks 3 months out on the futures curve to provide a good heads up. Nadig also notes the strength of silver.
“Silver has a lot of interesting structural things going on right now,” Nadig explains, referring to the small dichotomy between that and gold. “I think this is a safe time for investors who are looking for something left-of-center to really focus on.”
Backing Bitcoin Still
Bitcoin also comes up, as it has been a place for many to hedge. Nadig notes how the SEC is more comfortable but has not done anything with the many companies that have attempted to file ETFs focused on the cryptocurrency. Really, it’s basically a horse race to call when the SEC finally allows for a bitcoin ETF to arrive in the U.S., just as it has in other countries.
“I would expect it to be more of a 2022 thing, over 2021,” Nadig adds. “In the meantime, you’ve got two options: blockchain-focused-equities such as the Amplify Transformational Data Sharing ETF (BLOK). The other is to look into some of these trusts that trade on the pink sheets, knowing they are very difficult to trade.”
Jumping to volatility in the market, following the pandemic-induced sell-off last year, Nadig states how normal volatility is probably bullish for markets. People are chasing into equities at this point. They are selling gold and bonds, leading to a consistent flow of equity, which, in turn, tends to draw volatility down.
“I wouldn’t say it’s a trap, but if you’re focused on risk management, I would stay focused on it. Look to diversify, and look to alternative assets such as commodities and real estate. I wouldn’t just get sucked in on the fear of missing out.”
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