Joining the “ETF Report” with hosts Alexis Christoforous and Kristin Myerson, ETF Trends CEO Tom Lydon spoke to what investors should be expecting in the coming months.
As Lydon explains, some major shifts are occurring. In the last year, areas like value stocks have started performing quite well. There are some big ETFs to consider, such as the iShares US Small Cap Value Factor ETF (SVAL), which is up 30% year-to-date and showing just how real this trend is.
Considering the fundamentals behind it, as Lydon notes: “Not only are the prices right, as far as a valuation p/e ratio, but when thinking about the reopening trade, these small companies have the ability to turn on a dime and ramp up really quickly. And many of them have. So, as you look at your portfolios today, they love the mega-cap stocks and the FAANG stocks, which gave them that boost over the last ten years. Now is the time to start thinking about diversifying into small cap, value, and into opportunities overseas.”
“Most Americans… love the mega-cap stocks, the FAANG stocks… that gave them that boost over the last 10 years,” @ETFtrends CEO @TomLydon says. “Now’s the time to start thinking about diversifying into small-cap, into value, and especially opportunities overseas.” pic.twitter.com/rFFDQUa7BP
— Yahoo Finance (@YahooFinance) May 5, 2021
Keeping Track of Inflation
As far as rising inflation concerns go, with reports of interest rates rising sooner rather than later, Lydon added that the Fed has not really been concerned. However, it’s clear in the case of gas and commodities prices that things are going up. The same goes for lumber and other base commodities. Gold seems to be the only thing that hasn’t shifted in price.
Regardless, inflation is real and being felt by consumers and investors. With that in mind, and for the first time in a long time, there are some opportunities. These include the Invesco Optimum Yield Diversified Commodity ETF (PDBC), currently up 22% YTD. The fund provides a good cross-section of 12 different commodities, all wrapped into one ETF.
Another creative fund is the KraneShares Global Carbon ETF (KRBN). With carbon credits becoming more important, prices rising, and more, KRBN may be a good way to hedge against what’s taking place with the world opening back up.
The Need to Hedge
Turning to what investors should be doing to account for the need to hedge, based on how the market is pivoting, Lydon explains that retired investors should have some concern. The same applies to those with a balanced portfolio.
Lydon continues: “Looking at the Barclay’s Ag, it’s not a great investment if you’re threatened by rising interest rates. Especially with rates so low. So, a lot of people are saying it’s not worth the risk and there aren’t going to play the game, so they’ll take what they’ve got and go home and either camp out in money market funds or look to alternative yield strategy areas like real estate, dividend producing stocks or ETFs, or MLPS.”
Based on fund flows, it is quite evident that there is plenty of concern from the fixed income side.
For more market trends, visit ETF Trends.