It’s time to talk about ETFs. Yes, that’s a riff on what Federal Reserve Chairman Jerome Powell said about the central bank’s slowdown in bond purchases because it’s just not possible to ignore the impact of Wednesday’s decision by the Fed to begin negotiating the difficult process of withdrawing its easy money policies, while addressing the economic recovery from the global epidemic.
We won’t bore you with the details, but the Fed may raise interest rates sooner than expected, with two rate hikes in 2023. You can read what President Jerome Powell said and did here and the reaction market here and here and here, and the Fed’s perspective on interest rates here and inflation.
But what does all of this mean for exchange traded funds? This is what we will focus on this week.
We’ll also look at VanEck’s efforts to put bitcoin into an ETF wrapper. No one is putting bitcoin in an ETF wrapper, or in a wedge, yet.
Additionally, GameStop Corp. GME
arrives at the Russell 1000 RLG Index,
hang in there IWF.
Meanwhile, the midday market on Thursday was under pressure, with the Dow Jones Industrial Average DJIA,
and S&P 500 SPX
trading lower, and the Nasdaq Composite Index COMP
fought to keep a modest gain.
As usual, send any advice, or comment, and find me on Twitter at @mdecambre to tell me what we need to jump on. Register here for ETF Wrap.
Inflation and interest rates play a role
The Fed’s latest economic projections show that seven Fed officials plan to hike rates by the end of 2022, up from four in March. Thirteen of the 18 Fed officials say they plan to hike short-term rates by the end of 2023, up from seven previously.
Fed officials also expect the US economy to grow 7% in 2021 from 6.5%, according to projections released on Wednesday. Policymakers expect inflation to rise 3.4% in the fourth quarter from an estimate of 2.4% in March. The Fed’s current estimates therefore appear to be well above its annual target of 2%.
We chatted with Todd Rosenbluth of CFRA on how to play with rising interest rates and inflation themes. He called the IVOL ETF on Quadratic Interest Rate Volatility and Inflation Hedging,
which will make Nancy Davis, who launched it in 2019, quite jazzed up.
Davis is an options guru and former Goldman Sachs GS
trader, who believed that a product like actively managed IVOL was a missed opportunity. The ETF is roughly 85% weighted in inflation-protected Treasury securities, or Treasury bills that take into account changes in inflation expectations, which are a big problem for fixed assets like bonds of state. Much of the rest of IVOL is fixed income options that could benefit if long-term interest rates rise, for example.
IVOL is stable this year but up 3.2% over the past 12 months.
MarketWatch has spoken with Davis in the past, where she has stated that she also sees IVOL as a hedge against corrections in stocks and real estate, as stock and property prices tend to fall during times of volatility. increased fixed income.
IVOL, with $ 3.5 billion in assets, has an expense ratio of 0.99%, which means the fund will cost $ 9.90 for every $ 1,000 invested.
Rosenbluth also highlighted the INFL ETF of Horizon Kinetics Inflation beneficiaries,
which claims nearly $ 600 million in assets and has an expense ratio of 0.85%, and iShares 0-5 Year TIPS Bond ETF STIP,
which has $ 5.5 billion in assets and a 0.05% ratio, thanks to strong inflation.
Horizon was launched towards the start of the year and is up around 7% in the past three months, while the iShares inflation product is up 1.2% year-to-date. and 3.5% over the past 12 months.
There are certainly a ton of other ways to play on rising rates and inflation, including buying financial products, like SPDR S&P Regional Banking ETF KRE,
Financial Select Sector SPDR Fund XLF,
Vanguard Financials VFH ETF,
which would capitalize on banks with higher long-term rates, which helps support their business models of short-term borrowing and long-term lending.
Fidelity launches a trio of ETFs
Fidelity recently launched three actively managed ETFs. Fidelity Preferred Securities & Income ETF FPFD
on Cboe Global Markets and Fidelity Sustainability US Equity ETF FSST
and Fidelity Women’s Leadership ETF FDWM
both on the ICE owned by Intercontinental Exchange
New York Stock Exchange Arca platform.
Greg Friedman, head of ETF management and strategy at Fidelity, told MarketWatch via email that the Preferred Securities ETF, managed by Adam Kramer and Brian Chang, may offer some benefits to investors looking for more. income than traditional fixed income products.
“In general, preferred securities offer more income than traditional, higher quality bonds than high yield bonds, with less volatility than stocks,” he said.
“Equally beneficial, during times of rising rates, certain types of senior income securities, such as fixed to variable rates, are less sensitive to the same negative price pressure that most bonds experience,” said Friedman.
Is there a bitcoin ETF?
But there is news and it could be interpreted in several ways.
The Securities and Exchange Commission delayed the decision to approve a bitcoin ETF from ETF provider VanEck on Wednesday, marking the second time since April.
The SEC wants to understand whether the proposed VanEck Bitcoin ETF would be susceptible to manipulation, or if in particular its underlying assets would be, and whether a single market player would have “the ability to buy or sell large amounts of bitcoin. without significant impact on the market, ”he said in his announcement.
We reached out to the folks at VanEck on Wednesday who said: “VanEck continues to believe that investors will be well served by having a publicly registered Bitcoin product and we are committed to working with regulators during their review period.
One reading of the SEC decision is that it is reluctant to move forward with a bitcoin ETF this year and believes little has changed to alter its concerns about the digital assets that underpin an ETF. Another way to think of this statement is that the SEC is methodically trying to get to grips with this asset and is hyper concerned about investor protection, which the new SEC chairman Gary Gensler has expressed.
Tell us what you think.
The good and the bad
|Top 5 winners from last week||%Return|
Amplify BLOK ETF transformational data sharing
WisdomTree WCLD Cloud Computing Fund
Global X MLP MLPA ETF
Global X Cloud Computing ETF CLOU
United States Petroleum Fund LP USO
|Source: FactSet, until Wednesday June 16, excluding ETNs and leveraged products. Includes ETFs traded on NYSE, Nasdaq and Cboe of $ 500 million or more|
|Top 5 drops from last week||% Return|
ETFMG MJ Alternative Crop ETF
Global X Copper Miners ETF COPX
AdvisorShares Pure US Cannabis ETF MSOS
iShares Mortgage Real Estate ETF REM
iShares MSCI Global Metals & Mining Producers ETF PICK
GameStop won’t stop
GameStop claims a market cap of $ 16 billion, as of Thursday, but had qualified to join a more exclusive club, the Russell 1000 RUI Index
in May, according to the annual replenishment supervised by FTSE Russell. The index provider’s rebalancing comes as GameStop shares have climbed over 1000% so far this year, propelled by a meme stock revolution that has itself been fueled by individual investors on trading platforms. social media like Discord and Reddit, which have coordinated to drive shares higher and crush short sellers.
GameStop and AMC Entertainment Holdings AMC
to an even greater degree, has been a big beneficiary of this trend, which now has implications for ETFs.
The replenishment means that the iShares Russell 1000 Growth ETF IWF,
which aims to mimic the performance of the Russell 2000, will also have to include GameStop by June 25, when the reenactment will be completed.
The Russell 1000 Growth ETF was launched over two decades ago and is one of the most popular equity ETFs with around $ 66 billion in assets.
Visual of the week
Frame! LB00 timber price
are still up 150% in the past 12 months, but have declined in recent times, down around 27% so far in May.