TD Ameritrade: Tom Lydon On Top ETF Picks

Last year saw nearly $1 trillion in flows into ETFs, and flows are pacing to hit around $700 billion so far this year, Lydon explains. With a closer look, however, areas such as fixed income are actually experiencing outflows as advisors try to position portfolios around concerns of inflation and potential rising interest rates.

“On the equity side, the real surprising thing is investors are almost buying as much equity ETFs outside the U.S. as they are inside the U.S. as many are looking for value opportunities, diversification, and that type of thing,” Lydon says.

The biggest surprise in Lydon’s eyes, however, is the reversal on commodities, which experienced net outflows in 2021 but so far year-to-date have taken in $6 billion in inflows. It’s a move that makes sense as advisors and investors are seeking to move out of fixed income and equities and attempt to hedge their portfolios for the historic inflation being experienced.

Pivoting to discuss one of the major trends to emerge out of last year was the rise of crypto investing as an actual strategy with the offering of the first bitcoin futures ETFs last fall. The launch of the first bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO ), set records for the fastest ETF to hit $1 billion, but that interest and excitement has become somewhat muted.

“As demand for crypto waned, we also saw demand for crypto ETFs wane a little bit,” explains Lydon. He anticipates that interest will pick back up again if and when the SEC passes a spot bitcoin ETF, but the most common thought is that it will be 2023 at the earliest for that approval.

On the commodity front, Lydon discusses that while gold used to be an almost guaranteed hedge during inflationary times, it’s actually been the worst-performing sector within commodities of late. A fund like the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC ) offers a broad exposure to commodities, investing in sectors such as energy, real estate, agriculture, and a diversity of metals.

Dividend ETFs have seen an increase in interest as some advisors are moving away from the more traditional 60/40 portfolio in favor of a 70/30, or even 80/20 approach that utilizes dividend stocks.

“The big surprise, I think, is the ETF industry continues to evolve, and there’s some income enhanced strategies like… JPMorgan’s (JEPI A) (the JPMorgan Equity Premium Income ETF) in which you get a base index surrounded by an options overlay strategy that’s kicking off a seven or eight percent yield, and in many cases that can be a tax-free yield,” Lydon says.

“Look for more of that to come as everyone is looking for income and also hedging capabilities as well,” explains Lydon.

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