Stocking up on raw materials but not giving up on bonds yet

During April’s ugly sell-off, the ETF industry suffered monthly net outflows of $6 billion, breaking a streak of inflows dating back to August 2019.

Faced with a multitude of risk factors, investors find it difficult to sift through the noise. But ETF feeds can offer a good look at the lay of the land, Tom Lydon, global CEO of ETF Trends, said on CNBC’s “ETF Edge.”

He noted that inflation and commodity trends are the strongest in 40 years, with more money pouring into commodity-based ETFs than U.S. fixed-income ETFs this year.

Fixed income

Despite talk of the collapse of the traditional 60/40 portfolio, Lydon said we still haven’t seen significant outflows from bond funds.

The iShares Core US Aggregate Bond ETF (AGG) – the world’s largest bond ETF – is down 10% this year. Still, fixed income ETFs have racked up around $20 billion in inflows in 2022, which is relatively little but still a net positive.

Investors also poured a record amount of money into cash and money market funds, as well as short-duration ETFs.

Shares

According to ETF Trends, U.S. equity ETFs bled a record $28 billion last month, led by single ETFs like the SPDR S&P 500 ETF (SPY), iShares Core S&P 500 ETF (IVV) and Vanguard. S&P 500 ETF (VOO), which combined saw $32 billion in net redemptions.

Mega-cap technology-weighted portfolios are clearly the hardest hit. As growth stocks are hit by rising interest rates, many investors are moving away from the tech-heavy S&P 500 index.

So-called FAANG stocks, along with Microsoft and Tesla, make up nearly 25% of the S&P 500’s total market cap, but all have underperformed the broader benchmark so far this year, with Apple entering bearish territory. .

Still, there is evidence of bearish buying, at least when it comes to high-growth speculative stocks. Cathie Wood’s ARK Innovation Fund (ARKK) continues to attract assets as investors seek to capitalize on the massive decline in disruptive technologies.

Wood’s fund had 190 million shares outstanding in April 2021, and still has 190 million shares outstanding today. This means there are no sharp outflows, even after a 70% drop from recent highs. ARKK dipped below its pandemic low in March 2020 before rebounding on Friday.

Lydon said Wood’s loyalty should come as no surprise. “If you believe in her premise, if you believe in the game plan she’s put in place, and you can buy her 60% off from a year ago,” that’s a no-brainer buy. headlock.

Top Concerns of Financial Advisors

Among a host of macro risks, what do financial advisors worry about most?

ETF Trends surveyed thousands of advisors over the past month to find out what keeps them up at night.

Inflation and rising rates (43%)

Foremost among these concerns are rising interest rates and inflation. Many advisers have been disappointed with the Federal Reserve’s response to inflation control – and believe they will take a less hawkish policy stance than perhaps they should.

Geopolitics (34.5%)
The second biggest concern is geopolitical unrest, as Russian President Vladimir Putin reportedly prepares for a long war with Ukraine.

Prolonged economic downturn (12.5%)
Third on the list is fear of a possible prolonged economic downturn or recession. Fed Chairman Jerome Powell said he could not guarantee a soft landing as the committee battles to stave off inflation.

Market volatility (8%)
Less than 10% are worried about stock market volatility as traders grow increasingly numb to the dizzying movement.

Dividend sustainability (2%)

Just as the market has been charged with emotion, Lydon said ETF flows can be driven by emotion.

“You talk to advisers, they are not [as] concerned about the volatility of stock markets as they stand [with] rising interest rates and what inflation is going to do when you look at that part of fixed income,” he said. “If your client is close to retirement or retired right now, the outlook for fixed income is pretty bleak.

Warning

Garland K. Long