ETFs to focus on amid surging energy prices

Dave Nadig, CIO & Director of Research for ETF Trends, joins Yahoo Finance Live to discuss ETFs to focus on amid inflation concerns, energy market moves, and a look at China-related ETFs.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to stick with the markets now, and it is time for our ETF report, brought to you by Invesco QQQ. I want to welcome in David Nadig, CIO and Director of Research for ETF Trends. Dave, good to see you. Lots to talk about. I know you brought some of your picks for investors in this environment of higher inflation. And I'm going to start with energy prices. Natural gas, gasoline through the roof year to date. Where are you seeing opportunities right now? And where is money flowing into ETFs that focus on energy?

DAVE NADIG: Yeah, so the big winners here would obviously be those ETFs that are directly tied to the price of some of the commodities that are soaring here. It's worth noting that things like USO, the US oil fund, that's up 65% for the year. The US natural gas fund, the UMG, up over 115%. So obviously, if you caught those runs, that's great. We have seen flows there. For most investors who are worried about the longer term inflation picture, I think core commodities exposure probably makes more sense than trying to pick and choose which one of these individuals is going to be the big winner going forward.

What I like here is something like Invesco's PDBC, which is a very simple broad commodities fund that gives you some energy exposure, but also gives you those agricultural components, a little bit of precious metals, a little bit of industrial metals. That really lets you sort of paint the field, if you will, for this growing inflationary environment that we're in.

So for a lot of investors, that core allocation to commodities has been a big, big rescue over the last six, seven months when we've seen these prices rise. I'm not calling for, like, a giant commodity supercycle, where this is an endless run for 10 years. But if you're looking for a way to profit from some of these shorter term spikes, I think that's probably a good way to do it.

JARED BLIKRE: Well I want to shift gears a little bit. I know another ticker on your radar is KWEB. That's the KraneShares [INAUDIBLE] China Internet ETF. This stock is beaten down. This ETF is beaten down. It's down about 40% year to date, 56% from its peak. And this is a sector I've been looking to punt along. And just because it's so depressed right now, just a short to intermediate term trade, is now the time to jump in, maybe just wager your toes in the water?

DAVE NADIG: Yeah, so I think a lot of people misunderstand what's going on in China right now and think that this is about some sort of short-term economic control that's going on. It's really not. If we look at the pressure they put on the education sector, on video gaming locally, on the shadow banking sector through things like Evergrande, those are really about reestablishing command and control by the Communist Party.

Now, that may sound scary, but if you then look under the hood at the kinds of companies that are in something like the KraneShares Internet Fund, KWEB, these are not individual stocks that are going to get crushed. A few of those education companies got caught up in the middle of that crisis when we first got those big announcements. But honestly, if you look through the list of securities, these are firms. These are internet service providers, shopping providers, things like that, that really still have a lot of legs.

China's not going backwards. They're not going to give up on the internet revolution. They're just changing the rules of the game locally inside their country. They still need to capitalize on their ability to be dominant around the world. Internet has been a big place for that. I think KWEB, at this point, has been a bit of a falling knife. We've seen billions flow into that fund, just in the last 6 to 10 weeks. I think that's actually been pretty smart money. I'm not calling a bottom here, but I think the worst is definitely over.

ALEXIS CHRISTOFOROUS: And I want to turn our attention to what's happening in Washington right now. And if we do indeed get this deal to extend the debt limit and avert catastrophe, lawmakers can then think once again about that infrastructure bill. Are you still seeing high demand for ETFs that are related to infrastructure companies?

DAVE NADIG: No, we've actually seen that really fall off quite a bit in the last few months. I think some investors tried to get in early here with plays like NFRA or PAVE, both great funds tracking the global and US infrastructure space. But I think that may have waned a little bit, as we've realized how hard it's going to be to get meaningful infrastructure spending through this Congress.

So I think that's really faded off. We haven't seen a lot of money flowing into it. It doesn't mean that it still can't happen, but I think that the idea that this is somehow an easy trade that you can grab an ETF ticker for really isn't there. If we do get this deal go through and we do get that spending package, I think it's going to be short-term. great for the US economy. I think we'll see a big rally in the fourth quarter if everything sort of slides through, as we often expect. But I think [INAUDIBLE] is probably going to live up to its name. I expect the next three or four weeks is going to be quite volatile.

ALEXIS CHRISTOFOROUS: Yeah, you're not alone in thinking that for sure. Dave Nadig of ETF Trends, thanks for being with us.