Stock Market

Omicron volatility? How ETFs obliterated 2020’s record, gathering $800 billion in new money so far in 2021

Hello, there. We’re baack! And so is market volatility. Where can you take cover in exchange-traded funds amid all this carnage? How has the year been so far for ETFs? We’ll discuss all those things and more in our first issue back since Thanksgiving and the start of the final month of 2021.

You know the drill: Send tips, or feedback, and find me on Twitter at @mdecambre or LinkedIn, as some of you are wont to do, to tell me what we need to be jumping on.

The good…
Top 5 gainers of the past week

%Performance

Vanguard Extended Duration Treasury ETF
EDV,
+1.58%
6.4

iShares 20+ Year Treasury Bond ETF
TLT,
+1.19%
4.9

SPDR Portfolio Long Term Treasury ETF
SPTL,
+1.06%
4.6

Vanguard Long-Term Treasury ETF
VGLT,
+1.08%
4.6

iShares 10-20 Year Treasury Bond ETF
TLH,
+0.87%
3.8

Source: FactSet, through Wednesday, Dec. 1, excluding ETNs and leveraged productsIncludes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater

…and the bad
Top 5 decliners of the past week

% Performance

United States Oil Fund LP
USO,
-0.60%

-14.8

United States Natural Gas Fund LP
UNG,
-0.97%
-9.9

iShares GSCI Commodity Dynamic Roll Strategy ETF
COMT,
-0.12%
-9.5

iShares MSCI Chile ETF
ECH,
-0.24%
-9.3

Invesco DB Commodity Index Tracking Fund
DBC,
+0.10%
-8.9

Source: FactSet

A bumper year for ETFs

CFRA’s Todd Rosenbluth tells us that demand for ETFs hasn’t abated amid the recent bout of volatility that has gripped the market, even before the omicron worries took choppy market action to a new level.

Rosenbluth notes that ETFs thus far in 2021, through the end of November, have attracted about $800 billion in new money. That is a stunning figure that crushes the old record of $504 billion, set last year — and we still have nearly an entire month to go. The current tally means that net inflows in ETFs were about $72 billion a month.

“Equity ETFs represent 79% of the ETF market and have been extremely popular in 2021, but fixed income ETFs have pulled in a strong 23% share of net inflows through the first 11 months,” says Rosenbluth, who heads up mutual fund and ETF research.

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The analyst notes that fund provider Vanguard delivered the greatest number of funds among the top 10 providers, BlackRock’s
BLK,
-2.10%

iShares drew the most money.

“While Vanguard has had six of the 10 most popular ETFs to purchase in 2021, led by Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF… iShares had the most funds cross the $1 billion market,” Rosenbluth writes.


CFRA

ETF expert Marc Knowles, director at Alpha FMC — an asset management consulting firm that works with 90% of the top 20 global asset managers by assets under management — says that he is advising such managers to adopt an ETF strategy.

Much of the growth in the ETF industry has come amid the boom in actively managed ETFs, the emergence of nontransparent vehicles and a raft of outright conversions of mutual funds into ETFs.

The ETF in the fridge

Precision farming, innovation around meats and non-meat creations are among some of the key elements of what some describe as the future of food. The trend is something that probably would have gotten Thomas Malthus pretty excited and now we’re looking at a new ETF that focuses on the subsector.

The folks at VanEck is kicking off the VanEck Future of Food ETF, with the ticker symbol YUMY, on the Intercontinental Exchange-
ICE,
-0.78%

owned New York Stock Exchange’s Arca platform.

The actively managed fund carries and expense ratio of 0.65%, which translates to a an annual cost of $6.50 for every $1,000 invested. Some of its biggest holdings will include alternative milk provider Oatly Group AB
OTLY,
-2.79%
,
as well as Corteva Inc.
CTVA,
-0.32%
,
an agricultural innovation company that was spun out of DowDuPont, as well as Givaudan
GVDNY,
+0.73%
,
a Swiss-based maker of flavors and fragrances, and Westchester, Ill.-based Ingredion Inc
INGR,
+0.02%
.
, which develops modified starches, among sugars.

ETF for NFTs? Ofc!

There are plenty of ETFs pegged to crypto and blockchain but Defiance ETFs is targeting the much narrower segment of digital assets: nonfungible tokens, or NFTs. Sylvia Jablonski, co-founder and Chief Investment Officer of Defiance declared that NFTs “could be bigger than the internet.”

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The Wall Street Journal reported that interest in NFTs — digital collectibles that can be used to authenticate an asset using blockchain technology — has exploded among, “generating $10.67 billion in trading volume in the third quarter of this year, up 704% from the second quarter,” citing data from digital analytics firm DappRadar. 

Whether it is ultimately a fad or something that approximates the significance of the internet remains to be seen, however.

The Defiance Digital Revolution ETF
NFTZ,
-8.80%

trades on the NYSE Arca and tracks BITA NFT and Blockchain Select Index. It carries an expense ratio of 0.65%.

It’s not clear that the fund is demonstrably different than many other crypto-adjacent ETFs in existence but Defiance describes the fund’s strategy thusly:

The Index, and consequently the Fund, is expected to concentrate its investments (i.e., hold more than 25% of its total assets) in the securities of Crypto and Blockchain Companies. As a result, the value of the Fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries.

What to buy?

CFRA’s Rosenbluth is rating iShares Broad USD High Yield Corporate Bond ETF
USHY,
-0.02%

a five-star rating, citing its performance (which is no gurantee of future results) and its expense ratio. Rosenbluth says that the ETF is worth a look compared against some of its more expensive rivals like iShares iBoxx $ High Yield Corporate Bond ETF
HYG,

and SPDR Bloomberg High Yield Bond ETF
JNK,
-0.01%
.

The funds are all down at a comparable level in the year to date, with the USHY offering a slightly better performance than its rivals.

The iShares USHY product carries an expense ratio of 0.15%, compared with SPDR’s 0.40% expense and iBoxx, which has an expense ratio of 0.48%.

This week, fixed-income ETFs (see attached table) were one of the best performers, with volatility and concerns about the omicron variant forcing investors to make adjustments to their portfolios or at least seek some protection.

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What’s in a name?

A number of companies are looking to benefit from a change in name, including Square
SQ,
-5.64%
,
which recently announced it will be known as Block, as CEO Jack Dorsey seems set to double down on digital assets and blockchain at the payment processor after the entrepreneur announced that it was stepping down from social-media platform Twitter Inc
TWTR,
-1.36%
.

But anyone doubting the efficacy of a name change on one’s business (even if the company benefiting isn’t changing its name), need only look at the Roundhill Ball Metaverse ETF
META,
-2.63%
,
which apparently has seen inflows surge 548%, since Facebook changed its name to Metaverse name change, Business Insider reports.

What to do amid the omicron chaos

Despite the omicron-inspired choppiness in the market, flows into “SPY,” the SPDR S&P 500 ETF Trust
SPY,
-0.87%

were strong, as were those for similar equity ETFs such as Vanguard S&P 500 ETF
VOO,
-0.88%
.
Investors also jumped into ProShares UltraPro QQQ
TQQQ,
-5.02%
,
the ProShares Ultra VIX Short-Term Futures ETF
UVXY,
+12.98%

and the Global X Nasdaq-100 Covered Call ETF
QYLD,
-1.43%
,
CNBC reported.

Meanwhile,  the U.S. Global Jets ETF
JETS,
-2.19%
,
which holds 50 stocks in major airlines, has been at the center of the reopening trade from COVID and took a big hit as the omicron variant implied new or extended restrictions on travel. The ETFMG Travel Tech ETF
AWAY,
-2.83%
,
which invests travel and tourism-related industries were in focus.

U.S. Global Jets was down 0.7% on the week, while the travel tech ETF was down 1.3% so far this week.

MarketWatch’s Tomi Kilgore writes that the triple-short Nasdaq 100 ETF, the ProShares UltraPro Short QQQ ETF
SQQQ,
+5.08%
,
was one of the most active funds on U.S. exchanges on Thursday.

Good ETF reads


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