With $252 billion going into ETFs so far this year, over the $153 billion from last year, there’s ample room for investment opportunity. ETF Trends’ CEO Tom Lydon joins Yahoo Finance’s “ETF Report” with Akiko Fujita to discuss where investors can find the next equivalent of companies like Facebook, Apple, Amazon, and Netflix, otherwise known as the FAANG stocks.
As far as what has brought so much influence towards ETFs, Lydon explains how most of the money has come from corporate and high yield bond ETFs. That said, equity flows have also been interesting. Looking at markets represented by the S&P 500, the biggest ETF, SPDR S&P 500 (SPY), is actually down $26 billion YTD, while the Invesco QQQ Trust (Nasdaq: QQQ) is up $12 billion.
So, there’s a bifurcation going on. Things are at a state where it’s technology, communications, and healthcare vs. energy, financials, and industrials. The innovative areas are the ones proving to benefit. As a result, investors are deconstructing major indexes by overweighting into the areas and sectors poised to do well in this Coronavirus environment.
This in mind, it is tough to ignore how well FAANG stocks have done. Now, considering the environment, they are perfectly set up to keep performing.
“With two-thirds of small businesses in the U.S. being responsible for the GDP, we’ve all had to adapt in our own way and embrace technology, and those FAANG stocks have been perfect for us, including being able to order online,” Lydon states.
A New FAANG
As far as up-and-coming FAANGs in the ETF world, a great area to look is the ARK Innovation ETF (ARKK). This is the largest actively managed ETF. Kathy Wood, the CEO for ARK, keeps 35-50 companies in ARKK, with the largest holding being Tesla, even while it hasn’t been in the S&P 500.
That’s wild to think about, but based on Tesla’s last earnings in the previous quarter, it does qualify. Also, many are saying by the end of the year, it will get the approval to join. If that happens, it appears that $30-50 billion of acquisitions will have to be made to get into S&P-like indexes.
Areas in healthcare also fit as possible FAANG contenders as well. Crispr Therapeutics, genome sequencing companies that are great with cancer research.
As far as eCommerce goes, Lydon points out the Global X eCommerce ETF (EBIZ), which has a lot going for it in the world of online buying. As a reminder, only 13% of retail sales have been online. However, there’s been a 35% increase in online shopping year-over-year, based on the data.
“We could have an online number move up to over 20%, based on online sales this year,” Lydon adds.
Many companies in that online index will continue to increase as online buying increases. Additionally, there’s the ProShares Long Online/Short Stores ETF (CLIX), which puts favor online over the big box stores. It makes sense given what’s no longer going to be feasible for physical shopping, and where the money is going into.
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