Stock Groups

The ETF industry is raking in cash, but advisors have plenty of worries


Exchange begins Monday in Miami Beach as the largest ETF conference. The exchange-traded funds financial advisory industry is experiencing both positive and challenging times. 

This is a great time because it’s the first time in two years that the ETF industry has been partnered with ETF-centric advisers. Investors are still investing in ETFs. Most of the money is passive funds (index funds), but there’s also some actively managed funds. 

In less than 2 years, assets under management have increased from $5 Trillion to $7 Trillion. 

Difficult times, because the markets are in turmoil: There is a lot of money moving around, and advisors attending the event are looking for answers on what to tell their baffled clients about what is going on when they return home. 

Hot topics 

The inflation fears take over from geopolitical risk.  ETF Trends, one organizer of the conference, conducted an extensive survey among thousands of financial advisers over the past week. It found that rising interest rates were the number 1 concern. Rising interest rates were the number one concern. 

What do you find most concerning about today’s markets?

Rising interest rates/inflation      43%

Geopolitical risk                             34%

Prolonged economic slowdown  13%

Market volatility                                8%

Dividend sustainability                    2%

Source: ETF Trends 

You can move tons of money around. Tom Lydon, conference organizer at ETF Trends told me that there is more money moving than ever in the past decade. “Investors, advisors are more worried about rising rates of inflation and falling equity values than they are about their fixed income assets,” Lydon from ETF Trends said. 

There are many signs that advisors are shifting away from traditional assets of 60%/40% stocks and to bond allocations. Lydon declared that “70/30” is now 60/40. 

Treasuries and mortgage-backed securities face particular pressure. There are many bond ETFs near or at new lows. 

ETF Bond funds with large caps: New Lows

Vanguard Total Bond (BND)

Pimco Active Bond (BOND)

iShares Core US Aggregate (AGG)

iShares Investment Grade Corporate (LQD)

iShares Muni Bond (MUB) 

Despite this, money market funds (at $5 trillion) as well as short-duration bond ETFs are at record highs. 

Equities:  Still inflows.  Even with the S&P 500 down 5% year to date, large, indexed equity ETFs continue to attract huge inflows, likely at the expense of their higher-cost mutual fund competitors. This is the Vanguard S&P 500 ETFThe competitor, (VOO), has received $26 billion annually in inflows to date. iShares Core S&P 500 ETF (IVV) $13 billion. 

ETFs that target megacap stocks include SPDR S&P 500(SPY) Invesco QQQQQQ has also experienced inflows. 

Not doing well:  International, value and small-cap ETFs were off to a good start in January, but when Russia/Ukraine tension escalated, demand tapered off. 

Commodities: These are they’re hot of course. The Invesco Optimum Yield Commodities ETF (PDBC), which is composed of futures contracts on 14 commodities, has been the leader this year, with $8 billion in assets. 

What is all the movement? Dave Nadig from ETF Trends (a financial futurist) said that it meant investors were nervous. He was also one of the conference’s organizers. Although there isn’t a clear sign from flows, it is clear that people are re-allocating their portfolios. The world is experiencing extreme uncertainty. It’s difficult to know the truth. Many are concerned about inflation. Many are also concerned about the retirement income. Others are concerned about Ukraine. 

SEC is being resisted by the crypto-industry  The biggest boost to the cryptocurrency community for years would come from a pure-play bitcoin ETF. However, the SEC refuses applications every year and instead approves bitcoin futures ETFs. 

However, the bitcoin ETF must be pure-play. This may prove to be the year that the industry pushes back.

Grayscale Bitcoin Trust(GBTC) awaits a response from the SEC regarding its application for a conversion to a bitcoin ETF. The decision should be made by early July. Michael Sonnenshein, Grayscale’s CEO, has hinted he may sue the SEC if it turns him down. Is there any legal basis for a lawsuit against Grayscale? Sonnenshein speaks Tuesday morning. ETF EdgeOn Monday, at 1 p.m. 

Active Management: There are firms that still jump on this bandwagon.Capital Group (which manages American Funds) has entered active management ETFs this year. Neuberger Berman also plans to join the ETF game. 

Nadig stated that the floodgates have opened and people will be moving into active space. ETFs appeal to a vast majority of the population. ETF products are a must-have for every asset manager. This is where the money is.” 

Morgan Stanley is another big player in the ETF market. The bank owns Eaton Vance and plans to launch an ETF offering this year. 

These speakers are worth your attention: 

Cathie Wood will interview me, the CEO of ARK Invest at 4:55 p.m., Tuesday.  The interview will be conducted by me, as well as a separate interview on CNBC at 4. 

Jeff Gundlach will be the keynote speaker at DoubleLine Tuesday morning, 10.30 a.m., about his macro-economic views and outlook for markets. 

Ric Edelman, former CEO of Edelman Financial Engines, on Tuesday as well, and on CNBC Pro at 3 p.m.,  on how crypto works in a diverse portfolio.  

Edelman purchased Edelman Financial Engines last year, which was rated as the top RIA for many years by Barron’s. Now, Edelman is helping advisors to integrate crypto in their assets. A new book, The Truth About Crypto is out.