On a recent podcast for Barrons LiveLauren Foster, senior writer, hosts Todd Rosenbluth (head of research for ETF Trends & ETF Database), who discusses active ETFs as well as ETFs to look at in a rising rate environment.
Rosenbluth opens the discussion by explaining that active strategies that are focused on risk reduction are currently performing better than other active strategies in current economic conditions. These risk-oriented strategy include strategies that reduce the possibility of a loss, such as The JPMorgan Equity Premium income ETF (JEPI).The, which is only down by 2% YTD when compared to the S&P500’s 10% loss, as well as dividend-focused ETFs, such as the T. Rowe Price Equity income ETF (TEQI)., up 1% YTD.
Investors also love certain thematic ETFs, but many tech-heavy ones like the have been a draw, too. ARK Innovation ETF ARKK, have taken a big fall.
Rosenbluth states that they have seen that many investors and advisors are long-term-focused and are patient. They have confidence in the long term thesis that Cathie Wood, and the broader research group at ARK, have.
Active funds are generating more than their fair share of market inflows. They now account for almost triple the market’s total inflows. Active ETFs are gaining popularity. The number of issuers and products available to them is also increasing. This includes many iconic firms such as Doubleline, Fidelity and T. Rowe Price.
It’s especially exciting if you love active management but want the tax efficiency, liquidity, low cost and liquidity that ETFs offer. Rosenbluth says that ETFs are the best of both worlds.
Many advisors and investors are shifting from a 60/40 portfolio towards a 70/30 structure due to poor performance in the bond space. This allows them to allocate 10% of fixed income into dividend strategy securities and ETFs. The following funds are popular: Schwab U.S. Dividend Equit Equity ETF (SCHD).The Vanguard High Dividend Yield Index ETF VYM.
Investors have also been interested in what Ill refer as covered-call eTFs. Rosenbluth explains that JEPI provides income using options in addition the stocks. Rosenbluth also explains other ETFs which use similar mechanisms to provide both income and upside potential.
Emerging Markets and Rising Rate Investing
Next, we will discuss emerging markets and the difficulties that some broadly allocating funds have experienced this year because of their exposure to China. This market continues to be a difficult one for investors. There are other options: Invesco S&P Emerging Markets ETF (EELV), This was up 3.5% at the end of last Week, while the broader exposure fonds were down double digits as well as the Freedom 100 Emerging Markets ETF – (FRDM).a fund that invests only in countries with economic and individual freedoms. FRDM is not exposed to China.
Rosenbluth provides advice for investors and advisors about investing in rising interest rates.
Rosenbluth believes that investors should consider whether their goal is protection against rising rates and higher inflationary environments or to be rewarded.
Fixed income requires awareness of interest rate sensitivity (duration). This is important from a defensive standpoint. To protect against the downside, it is better to focus on strategies with shorter durations. Rosenbluth says that advisors are more inclined to take advantage of rising rates and have found senior loan ETFs to be very popular because of their adjustable rates that can adjust over time, while still investing in high-credit-risk companies.
Other topics included ESG and waning investor and advisor interest in general ESG funds, aerospace and defence funds, inflation-related investing like gold and commodities, as well as alternatives investing.
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