WFH ETF ahead of the S&P 500 as COVID-19 cases rise

Yahoo Finance's Alexis Christoforous and Dave Nadig, CIO and Director of Research for ETF Trends, discuss the latest moves for work from home stocks.

Video Transcript

ALEXIS CHRISTOFOROUS: Time now for our ETF Report brought to you by Invesco. I want to welcome in Dave Nadig, CIO and director of research for ETF Trends. Dave, good to have you here. So you say you're seeing a trend among ETFs right now or interest in ETFs. And you say that has to do with the work from home trade. Tell us about it.

DAVE NADIG: Yeah, we've definitely seen a continued interest. It really started about in April. Obviously, we were talking about stocks back then like Zoom that were sort of not household names and are now, you know, part of our daily lives. We've seen a bunch of products launch around that space. The most notable has the ticker WFH, Work From Home. And indeed, those funds have done very, very well. You know, just in the last 90 days, the work from home ETF is ahead of the S&P 500 by about 4%, something like that.

But we've also seen this real rally in the more cyclical names. I mean, just in the last couple of weeks, we've seen the rally in energy, the rally in materials and industrials. I'm not such a big believer in that. If you look at where the flows from ETF investors are going, it may not be there either. We still see this real interest in technology names, work from home type names.

And we also see that in the business of ETFs itself. We had spend a lot of time talking to financial advisors, and those financial advisors have told us very clearly that when things get better, when we all have easy access to a vaccine, they're not going right back to the office. And I think that's a bit of a canary in the coal mine for the market at large. So I'm not such a believer in this whole, you know, all ships being raised by the sea right now. I still think we're in a world where we're going to have haves and have-nots when we look at 2021.

ALEXIS CHRISTOFOROUS: I want to talk more about this survey that you just alluded to. I know you surveyed over 2,000 financial advisors. And even they say they're shifting or reimagining, I guess, the workplace of the future. And more and more of them will be working from home.

DAVE NADIG: Yeah, I mean, and this is a pretty traditional business when you think about it, right? This is a fairly old workforce. The average financial advisor is 50, 55 years old. The vast majority of them never work from home. But 70% of them said that effectively, nobody in their firms ever worked from home.

Yet when we ask them, what do you plan on doing after COVID when this is all behind us, 40% of them say they expect a chunk of their workforce to still work from home one to two days a week. No matter how you ask the question, you end up with the same answer. This has been a secular shift in the way this corner of the industry works, the money management industry, the financial advisor industry.

I don't think we're going back, right? I think we've all learned if you're in a knowledge-based business, you can be more effective if you don't spend two hours a day in the commute. You can be more effective if you have access to the tools right at your desk. You can be more effective if you can spend more time talking to clients and less time getting to your clients.

I think that's not something that's going to change anytime soon. So when we see these kind of strange rallies where we've got tech go down and industrials come up and then back and forth, I think those are opportunities to buy the dip. I think you should be looking for opportunities to reinvest in that trade on weakness. And I'd be a little wary of this idea that we're somehow going to get back to a traditional brick and mortar normal world.

ALEXIS CHRISTOFOROUS: I know you brought one of your picks for us, the WFH ETF. Any other picks or anything else out there you like right now?

DAVE NADIG: Well, I think it's reasonable for folks to be playing defense. When we hit these sort of mythological numbers like we have today in the Dow, the numbers themselves, of course, don't actually mean anything. It's not like it's written in a tablet somewhere that something has to happen when we cross them.

But I think it's a reasonable time to look at your portfolio and ask whether you still have the same conviction you had before. So if you're looking to play a little defense, a couple of traditional ways to do it, obviously, you can look to safety plays like gold. You know, I think a lot of folks put a 4% or 5%, 10% allocation into those kind of safety play assets. We've also seen a real rise in products that really manage your exposure to the downside.

One of my favorites here is called SPYC, S-P-Y-C. That uses derivatives. It uses options to effectively buffer some of your downside risk and profit, whether the market melts up or down, and still keep you invested in the market. There's been a huge proliferation in products like that. There's probably 30, 40 products that have launched in the last year that are using derivatives to mold returns. And the flows have really been there. Investors have really put their money where their mouth is.

ALEXIS CHRISTOFOROUS: All right, because it can be a confusing world out there of ETFs. Thanks for sharing some of your picks with us, Dave Nadig, CIO and director of research for ETF Trends. Thank you.

DAVE NADIG: Thanks for having me.