Exchange, the largest ETF conference in the world, starts Monday in Miami Beach. These are both good times and hard times for the financial advisory industry of exchange traded funds.
Good times, because this is the first time the ETF industry and ETF-centric advisers have been together for over two years. But investors are throwing money at ETFs, mostly in the form of passive (indexed) funds, but also a slew of actively managed funds.
Assets under management have gone from $ 5 trillion to $ 7 trillion in less than two years.
Difficult times because markets are turbulent: A lot of money is moving around, and advisors attending the event are looking for answers on what to tell their confused customers about what happens when they return home.
The hot topics:
Geopolitical risk takes a back seat to inflation concerns. A survey of thousands of financial advisors over the past two weeks by ETF Trends, one of the conference organizers, indicated that the main concern was rising interest rates:
Which of the following worries you most about the markets right now?
Rising interest rates / inflation 43%
Geopolitical risk 34%
Long-term economic downturn 13%
Market volatility 8%
Yield sustainability 2%
Source: ETF Trends
Tons of money are moving around. “There’s more money in motion than we’ve seen in a decade,” conference organizer Tom Lydon of ETF Trends tells me. “Investors and advisers are more concerned about the threat of rising interest rates and inflation on their fixed-rate assets than their equity assets.”
In fact, there are ample signs that advisors are moving away from the traditional asset allocation of 60% / 40% shares to bonds. “70/30 is the new 60/40,” Lydon said.
Treasuries and mortgage-backed securities are under particular pressure, with many bond ETFs at or near new lows.
Large-cap ETF Bond Funds: new lows
Vanguard Total Bond (BND)
Pimco Active Bond (BOND)
iShares Core US Aggregate (AGG)
iShares Investment Grade Corporate (LQD)
iShares Muni Bond (MUB)
At the same time, there are record levels in money market funds ($ 5 trillion) and short-term bond ETFs.
Shares: Constant access. Even with the S&P 500 declining 5% year to date, large, indexed equity ETFs continue to attract huge inflows, likely at the expense of their more expensive mutual fund competitors. The Vanguard S&P 500 ETF (VOO) has attracted $ 26 billion in inflows year to date, its competitor iShares Core S&P 500 ETF (IVV) $ 13 billion.
Other megacap equity ETFs such as the SPDR S&P 500 (SPY) and Invesco QQQ (QQQ) have also experienced approaches.
It is not going well: International ETFs, value and small-cap ETFs got off to a good start in January, but as tensions between Russia and Ukraine escalated, demand fell.
Raw materials: They are of course hot. The Invesco Optimum Yield Commodities ETF (PDBC), which is composed of futures contracts on 14 commodities, has been leading this year with $ 8 billion in assets.
What does all this movement mean? “It means investors are nervous,” said Dave Nadig, a financial futures researcher at ETF Trends and another of the conference organizers. “There is no clear signal from the currents, but it is clear that people are reallocating their portfolios. We live in an extreme level of uncertainty. There is not one clear story. Some are worried about inflation. Some are worried about pension income. Some is concerned about Ukraine. ”
The crypto industry is pushing back on the SEC. A pure-play bitcoin ETF would be the biggest boost for the crypto community for years, but the SEC has rejected applications year after year and instead opted to approve bitcoin futures ETFs.
But the industry wants a pure bitcoin ETF, and that could be the year the industry retires.
The Grayscale Bitcoin Trust (GBTC) is awaiting a decision from the SEC on its application to convert to a bitcoin ETF, which expires in early July. Michael Sonnenshein, Grayscale’s CEO, has suggested he can sue the SEC if it dismisses him. What is the legal basis for a lawsuit? Sunshine speaks Tuesday morning; we ask him at ETF Edge on Monday at. 13.00
Active management: There are still companies jumping on the bandwagon. This year, the Capital Group, which manages the US funds, jumped into the ETF game for active management. Neuberger Berman also comes in.
“The sluices are opening and everyone wants to go into the active space,” Nadig said. “There’s a whole generation that prefers ETFs. Every asset manager wants an ETF product. That’s where the money is.”
Another big name is throwing its hat into the ETF ring: Morgan Stanley plans to launch its first ETF offering later this year (the bank also owns Eaton Vance, which already has ETF offers).
Keep an eye on these speakers:
Cathie Wood, CEO of ARK Invest, at 16:55 on Tuesday. I will do the interview along with a separate interview with me on CNBC at. 16.00
Jeff Gundlach, DoubleLine CEO, holds a keynote Tuesday at 10 on its macroeconomic outlook and market prospects.
Ric Edelman, former CEO of Edelman Financial Engines, also on Tuesday, and on CNBC Pro at. 15.00, on how crypto works in a diverse portfolio.
Edelman sold its company, Edelman Financial Engines (rated # 1 RIA by Barron’s for several years), last year and now advises advisers on how to incorporate crypto into their asset base. He has published a new book, The Truth About Crypto.