Stock funds see inflows of $58B

Yahoo Finance’s Alexis Christoforous and Dave Nadig, CIO and Director of Research for ETF Trends, discuss record inflows into ETFs.

Video Transcript

ALEXIS CHRISTOFOROUS: Time now for the ETF report, brought to you by Invesco QQQ. Let's bring in Dave Nadig. He is CIO and director of research at ETF Trends. Dave, always good to see you. I want to start by talking to you about what I spoke to our markets guest, Kathy Entwistle over at Morgan Stanley, about earlier, and that is rising interest rates and the possible rise in inflation. How should we start thinking about positioning our portfolios, our ETF choices, if inflation does, indeed, begin to rise?

DAVE NADIG: Yeah, I mean, I think we are in this weird Goldilocks scenario where we have rising growth, rising earnings expectations. Obviously, a lot of the reopening trades are still working for a lot of investors. But at the same time, we have this prospect of rising inflation. And I think it's important to recognize inflation is here. It just may not be hitting the CPI.

If you look at commodities, which, you know, at the end of the day, that's really what drives inflation-- food, energy, things like that-- all of those are up quite a bit. We were just talking about energy. Obviously, that's been a huge one. But the broad commodity space is up about 7% or 8% so far this year and up about 20%, really, over the last trailing year, particularly as we come up on some what I would call some easier comps, if you will, coming off some of those March lows.

So inflation is here. It will eventually show up in headline CPI. But we need to really pay attention, I think, to the core of inflation, which really is food, energy, and commodities. And what I'm hearing from a lot of financial advisors is, that's how they're repositioning their portfolios. They're looking for that kind of core commodity exposure.

ALEXIS CHRISTOFOROUS: What about using commodities as a hedge against inflation? We see it all the time with gold. But what are you experiencing in terms of inflows, outflows from commodity ETFs? And are there any there that you like in particular right now?

DAVE NADIG: Yeah, so I think gold is tricky, right? I think we have to recognize we are still in this very strong risk-on environment, that that's actually not good for gold. So despite the fact people look at gold as a long-term inflation hedge, I think today's the wrong day to make that call. I'm more a fan of longer dated commodities futures exposure that hit the whole basket.

The one that I particularly like is BCD, which is the Aberdeen standard fund based on the old Bloomberg commodities index, one that's been around for a long time. This looks about three months out on the futures curve so you don't end up with some of the backwardation and contango issues hurting you as much as it has in other markets, where we've seen commodities come back.

So BCD is one that I like here. I also like silver. I think the dichotomy between silver and gold is really interesting right now. Silver has a lot of interesting structural things going on. There was a bit of a hiccup around some of the silver trading, as some of that GameStop fear came into the silver market. We don't have a silver delivery in the futures market until March now. So I think this is a safe time for investors who are looking for something a little bit left of center to really-- to focus on. But I would stick to the broad commodities baskets like BCD if you had to make one call.

ALEXIS CHRISTOFOROUS: You know, another place that folks are hedging right now is Bitcoin. I mean, they're not even looking at commodities. They're going straight to Bitcoin. And I know we don't have any Bitcoin ETFs just yet, but do you have any news on that front that you can share? I'd have to imagine it's not going to be too far behind.

DAVE NADIG: Yeah, we sort of-- we have three things going on. One is there are a lot of ETFs that have filed to just invest directly in Bitcoin. The SEC has stalled on those for years at this point. There's a bit of a horse race going on about when will the SEC finally allow one. We now have one trading in Canada. We've got them trading in Europe. The US is sort of last to this party. I would expect that's probably more 22 than 21.

In the meantime, you've got two options. One is you can look at blockchain focused equities. BLOK is probably the easiest one there. That's from Amplify. The other is to look at some of these trusts that trade on the pink sheets with the giant caveat that those are very difficult to trade. Things like GBTC get a lot of headlines or the newly launched BITW.

But boy, you really got to be careful. They trade over the counter. They can trade at huge premiums to what they actually own. I think the smarter bet is to either invest in Bitcoin directly if you want to-- it's getting quite easy-- or to focus on those blockchain companies in BLOK.

ALEXIS CHRISTOFOROUS: Yeah, because there is lots of volatility there, and you have to have a strong stomach for it. And I want to get your thoughts just on volatility overall in the market. It has really calmed down since we saw sort of that pandemic induced sell-off almost a year ago now. And the CBOE volatility index has now broken through that 20 threshold, something we haven't seen in about a year. What does that telegraph to you about the markets right now? And how might you position your portfolio if volatility is not going to be a major part of the equation going forward?

DAVE NADIG: Yeah, I'm reluctant to lean too hard into this sub 20 VIX and think that everything is just going to be ducky. Certainly, the normal answer here would be that low volatility, as referenced in the VIX, is probably bullish for markets. We're in a bit of a TINA market, There Is No Alternative. And everybody is chasing into equities at this point.

That's part of the reason that we're seeing some of the yields rise in the bond market, is because people are selling those things. They're selling their gold, they're selling their shorter duration bonds. And where are they putting that money? They're putting it in the equity market. That consistent flow into equities tends to draw volatility down. I think it's-- I wouldn't say it's a trap, but if you're focused on risk management, I would stay focused on risk management. Look to diversify. Look to alternative assets, like commodities or real estate. And I wouldn't just get stuck-- sucked in with the fear of missing out.

ALEXIS CHRISTOFOROUS: Yeah, that FOMO can get you every time. Always some solid advice there. Dave Nadig of ETF Trends, good to see you.