VettaFi vice chairman Tom Lydon appeared on Yahoo! Finance’s “ETF Report” to discuss what ETF flows could look like in 2023 and what investors should make of the mixed messages being sent by the market.
With February hitting its midway mark, $61 billion has entered the ETF market. Lydon remarked, “We had the second-biggest year in flows last year, over $600 billion, so we’re off to a good start.” He noted that though flows into national funds were the norm for 2022, 2023 has seen five times the flows going into international ETFs, developed markets, and emerging markets. “Valuations are a lot less expensive,” Lydon said, which is contributing to the pendulum swinging back in favor of international funds.
According to Lydon, some of the funds seeing big flows include the JPMorgan BetaBuilders Europe ETF (BBEU ) and the iShares Core MSCI Emerging Markets ETF (IEMG ). “Those are some that are getting, collectively, almost $8 billion so far this year.”
The Report on the State of the Economy
Asked what he was hearing from advisors regarding mixed data about the state of the economy, Lydon said, “They are feeling like the Fed has this inflation thing under control, which is good, though they’ve baked in a couple more rate hikes. At the same time, they know they can’t top tick rate hikes, so what they are doing is pushing longer duration, lower credit quality, trying to grab more longer-term exposure in terms of yield.” On the fixed income side of things, Lydon pointed out that advisors seem to like funds such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD ) and the iShares 20+ Year Treasury Bond ETF (TLT ).
Lydon made the case for staying invested, given the potential of the markets to avoid a recession. “A lot of people have taken money off the table in the last year or two,” he said, though he noted that where you put your money matters, with the S&P 500 underperforming the Nasdaq 100. “Don’t operate on your stomach,” Lydon cautioned. “It may be that the S&P is not the place to be.” Lydon also pointed out that small-caps have been excelling. “The big thing is be diversified. We’ve had a home country bias, and we’ve had way more invested in the S&P 500 than should be, from a diversification standpoint.”
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