Yahoo Finance’s Alexis Christoforous and Cinthia Murphy, managing editor of ETF.com, discuss ETFs to look at in 2021.
Video transcription
ALEXIS CHRISTOFOROUS: It is now time for our ETF report, brought to you by Invesco. I want to welcome in Cinthia Murphy. She is managing editor of ETF.com. Cinthia, nice to see you again.
I’m curious how inflow was. I know we’m only in the first week of the new year, but we know that last year’s record flow to exchange traded funds was a basket. What does the inflow look like so far? Because traditionally, January is a month in which people start pouring their money into the market.
CINTHIA MURPHY: Yes, that’s true. The first week was kind of average, in fact. We have not yet seen a huge number of new assets come on the market. But it was quite active. It’s pretty much focused on a few specific segments that worked well and that suddenly got a boost from the outcome of Tuesday’s election.
So it was a very clear story where the question is to start the year. But the numbers did not break records in any way at the beginning of the year. It slowly picks up when people return from vacation.
ALEXIS CHRISTOFOROUS: Good. Well, probably their staycation as it were during this pandemic. Let’s discuss a bit about the trends you’re seeing this year. And I think a lot of them are going to be familiar to us. These are the trends we saw in 2020, probably just gaining more momentum. But it seems like clean energy is still a space within ETFs that we need to look at as potential winners under a Biden administration.
CINTHIA MURPHY: Absolutely. Clean energy is really a long-term story if you believe in climate change, if you believe that the future is greener. So it actually has long-term legs.
In the short term, since September, I think the first presidential debate was when Biden came out and talked about a $ 2 billion investment in renewable energy, and talked about tax credits for green energy companies. And it started accelerating this upward momentum.
Some of these funds, such as TAN, which is a solar ETF, rose by 250% in 2020, and this year it is still 15% higher, once the Tuesday election confirmed that Biden will have very little resistance to real money put in and make an effort to develop the green energy industry. ICLN, which is a broader clean energy fund with renewable energy, hydraulics, wind and all that, is also dramatically higher.
So I think clean energy is a segment that will be ready to really benefit if we see the talk, the campaign talk, and actually turn to numbers that support these industries, because they expected a lot from this huge investment. We will therefore have to see if it materializes. And if it does, if policy goes that way, if money goes that way, we can see that the sector is performing really well going forward.
ALEXIS CHRISTOFOROUS: One sector that did not perform well at all last year was the banking sector. And we are looking for the rebound of this year, especially now that yields are starting to rise slightly. And if inflation starts to heat up, and the Fed is forced to move later in the year, we can see the finances come back. What are your prospects for those ETFs, those economically sensitive ETFs?
CINTHIA MURPHY: Yes, banking has really struggled. I mean, of course, the low-rate environment is the biggest enemy for banks, because that’s how many of them earn their money. They need that interest payment, especially regional banks, because they do not have a diversified line of business to get away from the need for higher rates.
And a blue wave is really supporting the banks, because people expected more support from the government, and that we are seeing the rates go up a bit. All this is good news for banks.
However, I think that finances in general are only supported by the general reflection or the reopening of the economy, which has made the sentiment of investors more positive regarding value stocks. And finance is the biggest sector that dominates every value index, because they have been hit so hard since 2008 that all these values - many of the value stocks are financial stocks.
So you combine a more positive policy, possibly prospects, you combine stimulus, you combine higher rates and the demand for value game, which is the economy that reopens the game – it was just the perfect storm for finances.
I do not know how much bone is here. I mean, we need to see how banks perform. If people are still losing jobs, it can be difficult to pay off your debts. This could harm banks. So it’s not a sure bet, but it was a very interesting play and one that did really well to start the year.
ALEXIS CHRISTOFOROUS: Good. We’re going to leave it there. Cinthia Murphy, managing editor of ETF.com. Always enjoy talking ETFs with you. Thank you.
CINTHIA MURPHY: Thank you for having me.