February 28, 2024


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Dave Nadig Breaks Thematic ETFs Success On Yahoo Finance

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This article was originally published on ETFTrends.com.

Total ETF flows are $202 billion year-to-date through the end of June. June alone saw $58.5 billion. The story has remained the huge numbers going into bonds. ETF Trends Director of Research and CIO Dave Nadig joins Yahoo Finance’s Sibile Marcellus on “The Ticker” to breakdown the ETFs to watch in the second half of 2020.

Keeping bonds in mind, $31 billion went into US fixed income (and $11 billion into U.S. equities). Some of that is the Fed, as it has purchased $6.8 billion worth of corporate bond ETFs year-to-date, and other investors have been piling on behind them. 

As Nadig points out, the Big Winners here have been the Vanguard Intermediate Corporate ETF (VCIT), which pulled in $5.7 billion in June, and the iShares iBoxx USD Investment Grade ETF (LQD), which had $3.5 billion in inflows.  

“Those are classic ways of getting exposure to the U.S. corporate bond market, and I think the investors really have been playing this follow-the-Fed game,” Nadig states.

One fund in that space investors might be surprised to see is the VanEck Vectors Fallen Angel ETF (ANGL). The Fed has bought $28 million of it in the past month and $171 million in the month in overall flows. 

ANGL buys Bonds that have recently been kicked out of investment-grade status and into junk. Historically that’s been a great long term outperforming bet, as those bonds tend to get oversold and don’t have much-increased default risk. It’s up 7.2% over the last year and has a yield of about 5.5%.  The other big trend, especially in the previous month, was the rise of thematic ETFs. The most notable recent launch is probably the Direxion Work From Home ETF (WFH), which launched on the 25th of last month. It’s “thematic” because it owns companies across the spectrum of hardware, software, communications, and services. 

WFH may include Zoom, but it also includes internet-of-things companies, cloud computing, cybersecurity, etc. It’s also unique because it uses natural language processing to help select the companies most discussed in filings and news on these topics and then picks a highly concentrated 40 stock portfolio.  This follows on the heels of the hugely successful launch of the Roundhill Investments Sports Betting & iGaming ETF (BETZ), which, as you might suspect, includes online sports betting and online gambling companies. It quickly gathered $90 million in assets on launch in early June.

“Investors have been looking at these as interesting satellite choices for what otherwise might be a pretty passive, low-cost core,” Nadig explains.

In regards to these thematic ETFs, he continues, “If you are going to make an allocation into funds like this, it’s best to think of them as a few percent satellite positions in your otherwise stable core.”

For more market trends, visit ETF Trends.



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