With 2021 ending up as a landmark year for ETF inflows (just past $900 billion), there’s plenty to look at as far as what worked out the best for investors and which funds were less of a success. ETF Trends’ CEO, Tom Lydon, was on hand to go over some of these various funds on Yahoo Finance’s “ETF Report.”
As far as what brought investors into the game, as Lydon explains, it came down to the market continuing to surprise after the devastating correction seen in the first quarter of last year. There was an excellent rebound that continued to move forward in 2021. In particular, the FAANG stocks served as major indicators.
With all of this in mind, the S&P 500 is up about 25% YTD, and the Equal Weight S&P 500, represented by the Invesco S&P 500 Equal Weight ETF (RSP), is also up around the same amount. As Lydon notes, “The FAANG stocks really were the firepower behind the major indexes, not just the S&P but also the NASDAQ 100. We’ve seen other participation in the market, and that’s gone for growth stocks and value stocks.”
Switching gears over to the ARK Innovation Fund (ARKK) and noting how it’s been a tough year for some ETFs, coming off of February, sales weren’t quite as strong. As Lydon speculates, part of that could have been due to businesses opening back up and people feeling like the pandemic was going away. Zoom, for example, was down 56% this year.
However, as Lydon notes, “ARK has a great long-term outlook. They have a very open architecture and communication as far as how they structure their active strategies. If there were ever a buying opportunity for futures stocks, I would say it’s now because you’re not going to see these kinds of companies that, long-term, really are disruptors and innovators.”
Additionally, ARK has a new ETF, the ARK Transparency ETF (CTRU), which digs down into the underlying companies, making sure to be fully transparent and serve as an ESG-friendly opportunity.
Winners & Losers
Looking more at the winners and losers for client portfolios, some things stick out, such as the Invesco DB Commodity Index Tracking Fund (DBC). Commodities, in particular, has been an unloved area for a while now. However, coming out of the fear of inflation and rising interest rates, this has been one of the winners of the year.
“Some of the other winners,” Lydon notes, “Inflation protected bonds. For bonds in general, it’s really difficult for that fixed income portion of your portfolio to make money when there’s inflation and the potential for higher interest rates, as we’ve got this signal from the Fed going into 2022. So, there are a lot of investors, especially those that are older that are searching for yield, but also searching for safety.”
This is forcing investors to go very short on duration, and there are many active short-duration ETFs out there. Additionally, there’s a lot of money in cash right now, and people are moving their money from fixed income to the equity portion of the balance sheet in areas such as dividends, where a decent income can be found.
“For the first time in thirty years, after declining interest rates, many investors are going to be challenged to find a rising rate environment.”
For more market trends, visit ETF Trends.