Cinthia Murphy, Director of ETF Think Tank Research, joins Yahoo Finance Live to discuss ETF positions against current market volatility, as well as commodities and energy stocks.
Video transcript
SEANA SMITH: The retail industry and some of those big names like Target and Walmart are some of the worst performers in today’s mass sale. Again, all three major averages are currently in the red. XRT, the retail ETF, is down just over 8%. So we want to talk about what all of this means here for the ETF space. And for that, we want to call on Cinthia Murphy, Director of ETF Think Tank Research. And Cinthia, it’s a pretty exciting day for you when you look at losses like this. But what do you think of the selling action we’re seeing today?
CINTHIA MURPHY: I mean, it’s always shocking to see so much red all at once. I mean, we keep hoping to turn the corner and get back to the things we love to see, which is green and it just doesn’t happen. I think what we keep seeing in the ETF space is just that dilemma. Is it the bottom? Isn’t that the bottom?
And at any signal that it might be the bottom, all of a sudden we see a resurgence in buying and people may be looking to convince this market to stop declining. But then, as we saw a bit yesterday, and then today, things didn’t really improve, and the selling resumed. So it’s been a very tough market to watch everything, that’s for sure.
RACHELLE AKUFFO: But then, when you have these kinds of drops day after day, these kinds of wild swings, what’s the defensive game here in terms of ETF sector action?
CINTHIA MURPHY: You know, what we mostly see people doing is there’s not a lot of stuff that works. We’ve been hearing this line all through 2022, which means, in effect, all hedges are failing. There’s no place to hide, these kind of really hyperbolic statements. But they really reflect the sign of, what are you doing? So if you just look at last week and last month, so, you know, the last two weeks there’s been a lot of money all of a sudden going into your short-term bond funds .
It’s, like, the closest you can get to a cash-like allowance, but picking up a bit of a return. It’s that exposure to fixed income, which is considered your traditional safe haven, with the minimum duration risk you can possibly get because rates are rising, so bonds aren’t a good place to be . Thus, in this spectrum, short-term bonds capture a lot of assets. I mean, we’re seeing some of these funds go up, only three of them, BIL, SHV, raised about $5 billion in a week. So it’s really a space that is heating up as people seek security.
We have also seen strong demand for dividend ETFs as, again, trying to generate income. Everything else is down. So let’s find things that put some money in your pocket. So, dividend ETFs, especially high yield ETFs, have been very popular this year, and people continue to invest in this space. So it’s been really, like, a bit of trying to find ways to diversify your risk a bit and find games that can help you in that space.
SEANA SMITH: Cinthia, you mentioned the hunt for dividend ETFs. I’m curious what role you think energy played in that, because energy performed better. We had oil above $100 a barrel. Is that a big driver of the interest we’re seeing there?
CINTHIA MURPHY: Yeah, it’s fascinating because from an industry perspective, he’s got a massive performance this year. And yet, if you look at actual energy ETFs and oil ETFs, you don’t see a lot of money going there. So energy has really played out through high dividend ETFs, which currently tend to have a very high allocation to energy stocks, which generate very high dividend yields.
So people played energy through that vector, and they played energy more through the value ETF factor, so ETFs that are out there looking for relatively attractive value stocks . So value ETFs have a lot of allocations to energy right now because energy has been out of favor for so many years. So people really got access to this energy story through your dividends, through the value ETFs, more than directly through the oil and energy ETFs. So it was kind of an interesting indirect game. But for the dividend yield, energy is an important component this year because it has done so well.
RACHELLE AKUFFO: And I want to switch gears and talk about what you’ve seen in terms of record inflows into ETFs over the past two years. You say year-to-date ETF asset creation is now lagging behind year-ago levels, at about $200 billion year-to-date versus $350 billion at the same time in 2021. Why is this happening? And when you factor in things like some of those quarterly earnings, what’s your outlook?
CINTHIA MURPHY: You know, I think it’s fascinating because through all the turmoil in the market, as we’ve seen, starting in 2008, you still see that ETF investors, more investors, not just ETF investors, have really turned to ETFs to allocate and be tactical because ETFs are so liquid. They are easy to get in and out of. They are therefore attractive vehicles for expressing any kind of market sentiment. What’s been interesting in 2022 is that assets, the pace has really slowed down. So I think it’s fair that it shows that investors are reluctant to put more money to work in the market.
So it’s not so much about ETFs as it’s about overall risk aversion right now. I spoke to people. More and more people are telling me that they are just starting to invest their cash assets because they don’t know what to do with that money. And I think we’re starting to see that in global ETF feeds. They’re slowing down because there really isn’t a great place to put your money to work today, with all this red across the board.
