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 begins the discussion by explaining how active funds that focus more on risk reduction are performing better than other active strategy in current environments. These risk-oriented strategies include those that reduce downside risk, such as the JPMorgan Equity Premium income ETF (JEPI).The, which is only down 22% YTD, is less than the S&P 500’s 10% loss and dividend-focused ETFs like the T. Rowe Price Equity Income ETF, (TEQI),, which is up by 1% YTD.
Investors are attracted to certain thematic ETFs. However, many popular tech-heavy ETFs like the ARK Innovation ETF ARKK, have taken a huge hit.
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 currently bringing in more inflows than they deserve, almost three times the amount for the market they represent. Interest in active ETFs is increasing. However, the number of issuers offering products and services continues to grow. These include many prominent firms, such as Doubleline and Fidelity, which are well-known for their active mutual funds.
It is especially appealing if you are a fan active management and want the benefits of liquidity low cost and tax efficiency that ETFs provide.
Many investors and advisors are switching from a 60/40 portfolio to a 70/30 one due to the poor performance of the bond market. They also allocate the 10% extra from fixed income into dividend strategy securities or ETFs. The following funds are popular: Schwab U.S. Dividend Equit Equity ETF (SCHD).The Vanguard High Dividend Yield Index ETF 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 & 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 Volatility ETF (EELV) The index was up 3.5% by the end last week, while the broader coverage funds were down double-digits. Freedom 100 Emerging Markets eTF (FRDM).The FRDM Fund invests in countries that have economic and individual freedoms. FRDM is not exposed to China.
Rosenbluth provides advice for investors and advisors about investing in rising interest rates.
Rosenbluth states that investors should ask themselves if their goal is to protect against rising rates and higher inflation or if they are trying to be rewarded for it.
Fixed income is a defensive option. Awareness of interest rate sensitivity (duration), is crucial. Protecting against the downside is best done by focusing on shorter-term strategies. 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 covered were ESG and the waning advisors and investor interest general ESG-related fund, aerospace and defense funds and inflation-related investing such gold and commodities and alternatives investing.
To listen to the entire podcast featuring Todd Rosenbluth click here Click here.
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