Nadig on Trends, Commodities, and Yield on ETF Edge

After Pisani noted that tech is getting hammered and the Invesco QQ Trust (QQQ B) is down 31%, he remarked that flows still seem positive. Paglia attributed this to investor loyalty to growth, noting that growth investors are thinking long-term, making tech performance at the moment less relevant.

With QQQ and other funds floundering, there has also been a trade uptick in leveraged products such as the ProShares UltraShort QQQ (QID A). “The Q’s have been used as proxy for tech growth in the United States since the 90s, and that has only become stronger over time. When people look at the short or leveraged versions of that, what they’re really doing is using the benchmark proxy for tech and growth in their day trading strategies,” Nadig noted. He went on to explain that leveraged products have become volume stalwarts in the ETF space, frequently employed by day traders.

Pisani asked if ETFs had gone “too far” with leveraged products, and Paglia voiced her preference for more traditional ETFs that provide diversification and tax efficiency. Nadig sees the role of leveraged products and argues these ETFs serve a specific audience. According to Nadig, “the people who are trading short Q’s and leveraged Q’s aren’t doing that because they are looking for a more efficient beta on their retirement plan. They’re doing that because they are making a call on tech earnings season, one way or another.” He added, "there is a market for these more traded tools. Whether they should be as accessible, whether there should be gates against some of these sharper tools, I think that’s a reasonable conversation.

The resiliency in tech goes beyond just the marquee names, with Paglia pointing out the latest offering from Invesco, the Invesco NASDAQ Next Gen 100 (QQQJ B), also showing signs of that growth loyalty that’s kept QQQ in flows. “It’s not surprising to me, with the franchise that the Q’s has as a brand, that people are trusting that brand to look further into the market,” Nadig said.

Paglia also talked about the patent potential and one of the latest products in the Q suite, Invesco NASDAQ Future Gen 200 ETF (QQQS B+). “The money in research and development translates into patent filings,” she said, indicating that, historically, some of the biggest names out there started with revolutionary patents that fueled their eventual rise. Companies like Amazon and Tesla invested significant development in R&D. “Ten-fifteen years ago, Amazon was where you’d buy books online. Today it’s much more than that because of developments in tech,” Paglia observed.

“This is a page right out of the active management in the 90s and 2000s,” Nadig said, noting that QQQS has better data today and improved methodology to work with.

Yield has been hard for investors to find, but Paglia thinks the Invesco Senior Loan ETF (BKLN A) could help people seeking income relief. “We have seen incredibly healthy flows from clients looking for yield,” she said. Despite starting with outflows at the start of the year, the summer has seen BKLN turn around.

Short and ultra-short bonds are also getting a lot of attention as investors seek solutions to their yield woes.

Beyond Tech Trends and yields, commodities remain top of mind for many investors. The Invesco DB Agriculture Fund (DBA A) remains a commodity staple as the world continues to grapple with shortages, supply chain issues, and ongoing hangovers from the Russian invasion of Ukraine. Paglia noted that commodities have been performing much better than equities and bonds. "We have seen very health flows in products like (PDBC A-)," she said.

Meanwhile, the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC A-) provides access to futures contracts for a broad basket of commodities and focuses on generating yield. Nadig said, “It’s absolutely the default for most advisors.”

Given that the geopolitical risk seems unlikely to dissipate anytime soon, Paglia sees commodity trading as likely to remain in a place of strength for the foreseeable future.

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