ETFs to focus on amid soaring energy prices
Dave Nadig, CIO and Research Director for ETF Trends, joins Yahoo Finance Live to discuss ETFs to focus on against the backdrop of inflation issues, energy market movements and an overview of ETFs linked to China.
ALEXIS CHRISTOFOROUS: I want to stick to the markets now, and it’s time for our ETF report, presented by Invesco QQQ. I welcome David Nadig, CIO and Director of Research for ETF Trends. Dave, good to see you. Lots to say. I know you have brought some of your choices to investors in this environment of higher inflation. And I’ll start with energy prices. Natural gas, gasoline up to the roof since the start of the year. Where do you see opportunities right now? And where does the money go in ETFs that focus on energy?
DAVE NADIG: Yes, so the big winners here would obviously be those ETFs which are directly tied to the price of some of the commodities that are skyrocketing here. It should be noted that things like USO, the US oil fund, rose 65% for the year. The US natural gas fund, UMG, rose more than 115%. So obviously if you’ve caught those runs that’s great. We saw flows there. For most investors who worry about long-term inflation, I think exposure to basic commodities probably makes more sense than trying to choose which of these people will be the big winner in the future. .
What I like here is something like Invesco’s PDBC, which is a very simple large commodity fund that gives you some exposure to energy, but also gives you those agricultural components, kinda of precious metals, some industrial metals. It really allows you to paint the ground, if you will, for this growing inflationary environment that we find ourselves in.
So for a lot of investors, this core commodity allocation has been a big, big bailout over the last six, seven months when we’ve seen these prices go up. I’m not asking, like, a giant commodities supercycle, where it’s a never-ending race for 10 years. But if you’re looking for a way to take advantage of some of these short term spikes, I think this is probably a good way to do it.
JARED BLIKRE: Well, I want to change gears a bit. I know another ticker on your radar is KWEB. This is the KraneShares [INAUDIBLE] Internet ETF in China. This stock is beaten down. This ETF is beaten. It’s down about 40% year-to-date, 56% from its peak. And this is an area that I have sought to explore. And just because it’s so depressed right now, just a short or medium term trade, now is the time to jump in, maybe just bet your toes in the water?
DAVE NADIG: Yeah, so I think a lot of people misunderstand what’s going on in China right now and think it’s some kind of short-term economic control. It really is not. If we look at the pressure they are putting on the education sector, on video games locally, on the shadow banking sector through things like Evergrande, it’s really about restoring command and control to the Communist Party. .
Now that might sound scary, but if you then look under the hood at the types of companies that belong to something like the KraneShares Internet Fund, KWEB, it’s not individual stocks that are going to be crushed. A few of these educational endeavors were caught in the midst of this crisis when we first received these great announcements. But honestly, if you go through the list of titles, they are companies. They’re Internet service providers, shopping providers, things like that, that still have a lot of legs.
China is not backing down. They are not going to give up on the Internet revolution. They are only changing the rules of the game locally within their country. They have yet to capitalize on their ability to dominate the world. The Internet has been a great place for this. I think KWEB, at this point, has been a bit of a falling knife. We’ve seen billions of dollars pour into this fund, just over the last 6-10 weeks. I think it’s actually pretty smart money. I’m not calling a dip here, but I think the worst is definitely over.
ALEXIS CHRISTOFOROUS: And I want to draw our attention to what’s going on in Washington right now. And if we do get this deal to extend the debt limit and avert disaster, then lawmakers can think again about this infrastructure bill. Are you still seeing strong demand for ETFs linked to infrastructure companies?
DAVE NADIG: No, we’ve actually seen that drop a bit over the past few months. I think some investors have tried to get in here early with games like NFRA or PAVE, two great funds that follow the global and US infrastructure space. But I think it may have diminished a bit, because we realized how difficult it will be to get significant infrastructure spending through this Congress.
So I think it’s really faded. We didn’t see a lot of money going into it. That’s not to say it still can’t happen, but I think the idea that this is sort of an easy trade that you can grab an ETF ticker really isn’t there. If we get this deal and we get this spending package, I think it will be short term. big for the US economy. I think we’ll see a big recovery in Q4 if all goes well, as we often expect. But I think [INAUDIBLE] is probably going to live up to its name. I expect the next three or four weeks to be quite volatile.
ALEXIS CHRISTOFOROUS: Yes, you are not the only one who thinks this for sure. Dave Nadig from ETF Trends, thank you for being with us.