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The ETF winners and losers in 2021

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ETF Trends CEO Tom Lydon joins Yahoo Finance Live to discuss the winners and losers in the ETF market in 2021 and the ETFs to watch in 2022.

Video Transcript

- It is time now for the "ETF Report," brought to you by Invesco QQQ. 2021 was a landmark year for inflows into ETFs. Here with a look at what some of the biggest winners and losers were is our guest, Tom Lydon, ETF Trends CEO. Tom, thanks so much for being here. So we saw record inflows this year, as I said in the introduction. What was it that brought investors into the game?

TOM LYDON: Well, the market-- I think the market continued to surprise. After the devastating correction we had in the first quarter of last year, rebounded handsomely. And then as we got into '21, it continued to move. And the surprising thing is, coming out of the financial crisis, it really was the FAANG stocks that moved the markets and the major indicators further and faster.

But this year was a little bit different. Although the S&P's up, as we speak, about 25% year-to-date, we've also seen the equal-weight S&P, and there's an ETF RSP that represents that, which is also up about the same amount. So those FAANG stocks that really were the firepower behind the major indexes-- not just the S&P, but also the NASDAQ 100 and the QQQs-- we've seen other participation in the market, and that's gone for growth stocks and for value stocks, as well. So very, very healthy, as we've seen advancement right across the board in stocks.

JARED BLIKRE: And Tom, I want to direct everybody's attention to the Y Fi interactive where I have the ARK Innovation Fund top ETF holdings. And this is on a year-to-date basis. I'm going to sort by performance. And you can see there's a lot of red here. NVTA-- that's Invitae Corporation. Chart doesn't look very constructive here. All of this is just to say, it's been a tough year for certain ETFs. I'm wondering if you could comment on that.

TOM LYDON: Yeah, absolutely. So Cathie Wood and her team at ARK are legendary. They put up triple-digit returns last year. But coming off of February, there was some selling, and maybe part of that was opening up and people feeling like COVID was behind us. Companies like Zoom, for example, that did really well last year were down 50%, 60% this year.

But I'd say this. Look, they've got a great long-term outlook. They have very open architecture and communication, as far as how they structure their active strategies. If there was ever a buying opportunity for future stocks, I would say it's now because you're not going to see these types of companies that, long term, really are disruptors and innovators at these prices. They may go down a little bit more.

But boy, if you're looking-- if you're especially a younger investor in your 30s, 40s, 50s, man, you've got some great potential here because they can continue to come out with great products in a variety of areas. Not just technology, but also areas like genomics or robotics.

But also, they have a new ETF, which is a transparency-based ETF, which does a great job of digging down into the underlying companies and making sure not only are they fully transparent in everything that they do, but also, it's a very ESG-friendly opportunity, too. So I'm a big fan, even though it's had a bit of a hiccup this year.

- And then Tom, you have been tracking some of the winners and losers in client portfolios. Go through that list for us. I know one of the big winners for you was Invesco DB Commodity Index.

TOM LYDON: Well, it was. Commodities is an area that's been a little bit unloved. But boy, coming out of the fear about inflation, the fear about rising interest rates, and also the cost of commodities all across the board, whether it's base metals or oil or agriculture, this is one of the winners for 2021, for sure.

Some of the other winners were inflation-protected bonds. Bonds, in general, as you can see from a loser's bracket with AGG, it's really difficult for that fixed-income portion of your portfolio to make money when there's inflation and the potential for higher interest rates, as we've got this signal from the Fed going into '22. So there are a lot of investors, especially those that are older, that are searching for yield but also searching for safety.

So what's happening is those investors are going to be forced to go very, very short duration. And there are many active short duration ETFs that are out there. There's a whole lot of money that's in cash right now. And then people are moving money from the fixed-income portion of the balance sheet over to the equity portion of the balance sheet in areas like dividends, where you can actually get a decent income, as well.

So for the first time in 30 years, after declining interest rates, many investors are going to be challenged to fight a rising rate environment.

JARED BLIKRE: And Tom, we got less than a minute left. But I wanted to draw-- [CLEARS THROAT] excuse me. I want to draw everybody's attention to a brand new ETF that launched today. That would be the BAD ETF-- ticker BAD. Good ticker, I'd say, probably meme-ish maybe at some point. But what's behind this?

TOM LYDON: Yeah, it is. And it definitely is meme-ish, for sure. But it's betting on alcohol. It's betting on drugs. It's also betting on betting and gambling. So it's those areas of the market. With this big move that we've had in ESG, these companies tend to get kicked out. But in fact, they really are good companies, as well. So it's a little bit tongue-in-cheek.

At the same time, as we're talking about naughty and nice, Jared, Return On Character ETF is all about CEOs that actually do good. So look at that ETF, as well. The ticker symbol is CHAR, put out by our friends over at Alpha Architect. So here you have the holidays, a little bit of naughty and a little bit of nice.

- And you are all nice and nothing bad about your insight. We will leave it there. Tom Lyden, ETF Trends CEO, thank you so much for your time today, and happy holidays to you.

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