Todd Rosenbluth, Head of ETF and Mutual Fund Research at CFRA, joins Yahoo Finance Live to discuss the performance and adoption of crypto- and ESG-themed ETFs.
– Time now to turn your attention to the ETF report brought to you by Invesco QQQ. ETFs saw tremendous inflow last year, but some have outperformed while others have been a bit of a dud. Here to weigh in is Todd Rosenbluth, head of ETF and mutual fund research at CFRA. Todd, thank you so much for being here.
You say ESG funds did really well last year, but I want to start with the crypto space. The Bitcoin futures exchange, BITO, exploded when it appeared on the market but seems to have fizzled out now. And I’m wondering, is that a trend you see continuing into this year?
TODD ROSENBLUTH: Well, we saw record demand in 2021 for the Bitcoin futures based ETF BITO. It was the fastest to get to over a billion dollars. It got to $1.4 billion in the first couple of days.
We’ve seen, of course, since then the price of Bitcoin has fallen sharply. There’s now about a billion dollars in overall assets, which is actually a sign of comfort to us that investors have stayed loyal to this risk on asset despite the fact that we are headed into more of a risk off environment.
But we think investors that want to get exposure should also look at the various blockchain related ETFs. And I think we highlighted BIS, which is a Global X ETF that combined blockchain and Bitcoin futures together, and it’s doing better today in a risk on environment, I believe, but it also has, of course, struggled in the risk off trade that we saw starting 2022.
– So I want to get to those points you made on ESG investing because I think the perception is that all this money is flowing into that space. Was that indeed the case for 2021 and what does it look like so far here early in the new year?
TODD ROSENBLUTH: Well, off of a very small asset base, we saw strong demand for ESG products, broad based equity products that are tied to various sectors. And we’ve seen demand for iShares products, for Vanguard products, for DWS extractors products in 2021. About $15 billion went in to the 10 largest of these broad asset based products.
They only have about $50 billion in overall assets. But what was impressive to us at CFRA is that seven of these 10 largest products outperform the S&P 500, not by a lot, but by 100 basis points here or there for many of the products, some that are tied to the S&P 500.
So let me give a couple of examples, SNPE and EFIV, that’s a SPDR product and a DWS product. They outperformed the broader S&P 500 index, using the same constituent list, but excluding companies that don’t meet that same ESG criteria and having heavy weightings in sometimes companies like Microsoft that scored relatively well versus what you’d find in a more market cap weighted product.
– And so, you know, there is this misconception that if you invest in ESG funds, you somehow are sacrificing return in order to be socially or environmentally conscious. Is that actually the truth?
TODD ROSENBLUTH: Well, that’s the fear that people have, and that’s what the skeptics say. But the data shows that ESG/ETFs tend to be closely aligned from a sector perspective to the broader S&P 500. And as such, they’re more likely to only outperform or underperform if they do by a slight amount.
So many of those ETFs that we talked about– in fact, all of the ones that I think you showed on the screen have a weighting within energy companies. They are the best of the best energy companies.
They might be Exxon and Chevron, not for the environmental reasons necessarily, but for the social or the governance reasons that you’d find. If you want to avoid energy, there’s ways to do that with ESG oriented products, focusing on more the clean energy or the E part of the ESG pillar.
But if you want to track the broader markets with ESG products, you can do that, feel good about what you’re doing, and likely perform in line or perhaps even better if you’re using the right products.
– And Todd, just in this environment of higher interest rates for 2022, do you see investors moving away from growth going more to value? Where do you see the money starting to flow already?
TODD ROSENBLUTH: Well, we’re starting to see value oriented products. You showed earlier XLE and XLF. That’s the energy sector SPDR in the financial sector SPDR that have performed well. They’re seeing strong demand.
We’ve seen broader banking related products also being in demand. Value has done very well to start the year. They tend to do better value oriented ETFs in a rising interest rate environment because that hefty weighting towards financials and less exposure typically to technology, which tends to struggle initially out of the gate in a rising interest rate environment.
So we think we’re seeing value ETFs get an initial day in the sun the start of 2022. We’ll see if that persists throughout the rest of the year.
– All right, Todd, I also know you’re interested in dividend ETFs as well. We will have to leave it there. Todd Rosenbluth, head of ETF and mutual fund research at CFRA. Thank you so much for stopping by today.