‘Everyone is trying to chase yield:’ ETF Trends CEO

Yahoo Finance’s Alexis Christoforous and Tom Lydon, ETF Trends CEO discuss ETFs to watch amid the pandemic.

Video Transcript

ALEXIS CHRISTOFOROUS: Time now for our ETF segment brought to you by Invesco. Want to bring in Tom Lydon, CEO at ETF Trends. Tom, thanks for being on the show. Look, we've got a few weeks left here in 2020. I'm curious what inflows into ETFs has been like. What are you seeing?

TOM LYDON: Yeah, Alexis, it's been a blockbuster year for ETF flows. Right now, we're going to have a record, over $450 billion in new flows and for the first time led by fixed-income ETFs, $180 billion so far. A lot of investors have been moving away from Treasury-related allocations to corporates and high yields as everyone's trying to chase yield.

And on the equity side, we know that technology has been the barn burner as well where many of the NASDAQ-related, QQQ-related allocations have been huge. And one ETF that I'm recommending here, which is a Vanguard low-cost ETF, the Vanguard Information Technology ETF VGT, has also done really well this year, up over 37%.

ALEXIS CHRISTOFOROUS: Wow. So tell me-- I mean, we've seen this-- I don't know if I would call it a battle. Maybe it is-- between value and growth in the market over the past few weeks, few months. Are you seeing that playing out in the ETF space, and which sector is winning the battle?

TOM LYDON: Yeah, absolutely. In fact, it's a great question. Just in the last month, if you look at November, value again was getting crunched this year, but it had a great month. It came back strongly, outperforming growth stocks. And if you want a Vanguard ETF, there's a Vanguard Value ETF which is VTV, done very well in the last month.

And the idea also was to understand those tech stocks that did so well coming off of the low in March. FAANG did pretty poorly comparably last month when it really was a great month for the market.

So going forward, that's the big debate. Are we going to see value finally come back? because of the divergence in valuations between growth stocks and value stocks have been the biggest since 1999, and we know what happened after 1999.

However, there is optimism for growth to continue as more of these companies have adopted with this new COVID environment that we're in. Small businesses and medium-sized businesses are embracing technology in a big way. You and I are working from home and doing better from a technology standpoint. And we're less than 30 days away from new earnings-season reports, and I think we're going to continue to see great earnings in the growth in technology sector.

ALEXIS CHRISTOFOROUS: What if you were an investor and you want a little bit of both? You know, you don't want to have to choose between value and growth. I mean, does, you know, putting money into an ETF that mirrors something like the S&P 500 index make the most sense for that kind of investor?

TOM LYDON: Well, you know what? About five years ago it would have, but right now the S&P 500 is so tech and growth oriented that you're really not participating in value stocks. So that really is a great question. If you want to be diversified between growth and value, the S&P 500 probably isn't your best bet right now. So looking for some of these bigger ETFs that are really value oriented-- I think if you're conservative and you're looking for true value, P/E ratios that are half of what the growth stocks are right now is something to consider.

The other thing is there's a lot of companies that are coming to market and offering up value opportunities. For example, Dimensional with their mutual funds are going to be offering a whole suite of ETFs coming forward, and they are very much a value shop and good stock pickers as well. So in 2021, look for more value-oriented opportunities, not just from an index standpoint but also from an active-management standpoint.

ALEXIS CHRISTOFOROUS: All right. Speaking of 2021, you say the new year is going to bring more mutual funds converting to ETFs. In the 30 seconds I have left, tell us why.

TOM LYDON: Yeah. So we've seen the huge asset swing from mutual funds to ETFs. We've seen mutual-fund assets bleeding. A lot of these bigger shops are saying, hey, in order to stop the bleeding and actually participate in that growth, SEC has granted new laws to be able to convert an actively managed mutual fund into an ETF, which is huge for the industry but also huge for investors and competition.

So as I mentioned, Dimensional's on there. Guinness Atkinson are going to be one of the first. Expect more big mutual-fund companies to convert some of their funds over to ETFs next year.

ALEXIS CHRISTOFOROUS: All right, nice outlook for the new year and ETFs. Tom Lydon, CEO of ETF Trends, thanks so much.

TOM LYDON: Thanks, Alexis.