Natural gas, energy ETFs in focus following COP26 climate summit

Tom Lydon, ETF Trends CEO, joined Yahoo Finance Live to discuss natural gas and energy ETFs to watch.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back to Yahoo Finance Live. Time now for our ETF Report brought to you by Invesco QQQ. Want to bring in Tom Lydon, he is CEO of ETF Trends. Tom, good to see you again.

I want to start with sort of the talk of the moment, which is COP26 in Glasgow, and what they're doing there regarding climate change. Are you seeing more money piling into those sort of related ETFs this week? And if so, what are they?

TOM LYDON: Yeah, absolutely. I mean, these areas in the ETF space have been hot for the last couple of years, especially right after Biden was elected. But in the last month, we've seen a couple of the top solar ETFs, two by Invesco-- Invesco solar and Invesco clean energy-- both up 24% and almost 20% individually over the last month. So a lot of people are listening on Wall Street, there's a strong demand, there is going to be some bite to the messaging that we're seeing over in Glasgow. And with that, we've seen these stocks rise considerably in the last four weeks.

- And then, Tom, I want to ask you-- how much interest is there in crypto ETFs, like futures, exchanges, like BITO, that just came out earlier? And then how much have you seen contributions grow or shrink over the last year over the pandemic course?

TOM LYDON: Yeah, it's a great question. And it's great to see that finally, we have Bitcoin ETFs go mainstream. Because when you think about for the average investor, who doesn't necessarily have a Coinbase account or doesn't understand the nuances of BTC, they now have authorized Bitcoin futures ETFs, both from ProShares, BITO, that you mentioned, and also Valkyrie, BTF.

Both have done well. The big question is with a futures-backed strategy, would it actually get some traction? And it did. BITO was the best launch ever in a short period of time of an ETF-- a billion dollars in a few short days. And now investors who are mainstream investors who happen to invest off platforms like a Schwab or Fidelity can now creep into that area.

So it's worked as planned. The big question at this point is, will the SEC see it in the future that they could have a physically-backed ETF where it's like GLD where they're actually holding the underlying securities? The question's out, many feel, on Wall Street, that that's going to be months away, and question whether we'll actually see it in '22 or not.

ALEXIS CHRISTOFOROUS: And, Tom, I know that, you know, we talked a lot about energy being really hot this year-- one of the best performing sectors for ETFs year-to-date. Do you see that continuing? And where specifically are investors looking to put money to work there?

TOM LYDON: Well, look, a couple of things-- energy's been on working really, really well. We've seen the natural gas area, led by the First Trust Natural Gas ETF, FCG, is up tremendously this year. And now as we're getting into those winter months and there's more demand for natural gas, not just here, but around the world, that's probably going to be sustainable going into the next three or four months.

So WTI, we saw it dip down below 80. The big question is, is it going to go further down, or are we going to see that reverse back above 80? There are many that are talking about $100 a barrel by the first of the year. It's going to be interesting to see. But the cool thing about ETFs is you can slice and dice it in a whole variety of different areas.

One other before we go-- commodities have actually been very, very popular. The least performing commodity area has been gold, but areas like energy, agriculture, base metals have done really well. And one ETF to consider is the Direction Commodity ETF, COM, C-O-M, where it's a kind of combination of 13 different commodities areas. And if you feel inflation's here for a while, we're going to continue to see commodity prices go up.

- And then that leads me to the next question is, as we sort of see future rate hikes coming possibly next year, how do you rearrange your portfolio? What shifts do you make?

TOM LYDON: Well, one thing most have been talking about is the bond market. Rising rates is not good for the bond market. We all know that. Many that have traditional 60-40 portfolios are switching that 40 a little bit over towards growth, or growth in income, or even alternative income strategies. So what we're seeing in the fixed income side is number one, even though we're having a record year with inflows, we're having a fraction of money go into bond-related ETFs. And most of that money is going into short duration active or the other end of the barbell, which is alternative income strategies-- there's some great options, overlay strategies. Even in the energy space like MLP, these areas are kicking off 7% to 8% yields which can really make up for the low yield environment now and what rising interest rates can do to bonds.

ALEXIS CHRISTOFOROUS: All right, Tom Lydon of ETF Trends, always good to see you. Thanks for stopping by.