Investments in actively-managed ETFs are on the rise. VettaFi investment strategist Cinthia Murphy joins Wealth! to discuss why active ETFs may be the key to a successful second half of 2024, despite uncertainty around the economy.
Murphy explains why active ETFs have become so popular: “It’s been a big year for active ETF demand because it’s a time when people are trying to be more hands on about positioning themselves in this amount of uncertainty, going forward. If you look the demand for your classic index based portfolios, whether it’s in equity or fixed income, that remains strong and really robust, but active is a little bit of a new phenomenon in the ETF space. It’s been around forever, but it never really took hold until recently when more product, better product, lower fee products really started to emerge. “
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This post was written by Nicholas Jacobino
Video Transcript
Actively managed exchange traded funds account for 33% of all ETF inflows this year through May.
That’s despite representing just 7% of all ETF S according to a report.
And our next guest thinks that they might be the best play for an uncertain back half of the year.
And to discuss this further, let’s bring in Cynthia Murphy that by investment strategist as part of the ETF report brought to you by invest QQQ Cynthia, great to speak with you.
Great to catch up here once again.
All right, so break this down for us.
Why do you think that these are the most in demand active ETF S for the second half of the year?
Hi, Brad, it’s, it’s been a big year for active uh ETF demand because it’s a time when people are trying to be more hands on about positioning themselves in this amount of uncertainty going forward.
Uh If you look, you know the demand for your classic index space portfolios, whether it’s an equity or fixed income that remains strong and really robust, but active is a little bit of a new phenomenon in the ETF space.
It’s been around forever.
But it never really took hold until recently when more product, better product, lower fee products really started to emerge.
So we’ve seen not only huge amount of launch of interesting strategies, things like in categories that didn’t exist before, like buffered investing or, you know, a lot of options based equity, income, things that we couldn’t do it before.
And a lot of the index based strategies, all these things now exist and they are accessible from a price point perspective.
And we’re just seeing investors really embrace it as a way to either diversify portfolios or to, you know, look for alternative income strategies or better risk management tools, all of which apply in an environment where we don’t know where this market is going.
We were speaking earlier with one of our guests, uh one of our guests, Brian Mulberry, who was telling us about this flight to quality.
How are we seeing that play out in the ETF landscape?
Yeah, the flight to quality is interesting because it speaks to sentiment.
So about I recently did a poll where we asked advisors, you know, how are you feeling about the second half bullish or bearish?
And a higher percent of advisors said they feel more bearish going into the second half, then they felt more bullish and you’re seeing that expressed in a demand for, you know, quality.
So for example, if you have really been in this growth train and you’re just buying up your NVIDIA and your Microsoft and your Apples and you really chase the Mac seven and you’re all in all of a sudden you’re worried about, you know, can they keep delivering on these earnings?
Can they keep delivering surprises to the upside or is it time to really focus a little bit more on quality?
So funds like Q growth, for example, uh really stand out as you stay invested in growth, but you’re really looking for fundamental quality in some of the names we’ve seen demand for things like, you know, free cash flow companies.
That that’s a suggestion of a sign of financial well being.
So funds like VFLOV flow, you know, or some of your cash cows also stand out in this space.
So the flight to quality has been happening both in equities and in fixed income again as a safety guard as a little bit of a defensive positioning ahead of what comes next.
You know, we were also and you know, I’m just having all of these little kind of remembrances of conversations that have had some of the very themes that we’re talking about.
Um but within some of the kind of larger realms of what thinking investors may be going through right now.
And one of them that came up was garp growth at a reasonable price here.
How does that play in over an an ETF strategy that someone wants to roll out as well?
Now, there are, there are a couple of interesting funds in that space.
One, the ticker is Garp, uh the other one, Dapdarp, these are strategies that again, they want to keep you invested in growth.
If growth is your thing, if you just think classic growth versus value, uh and you really wanna lean into growth, but you are worried about valuations, I mean valuations are really stretched in the space, but leadership has been very narrow in this space as well.
So when you go to something like a garp, you tend to find names that aren’t your mag seven.
So heavily weighted, you tend to find things that are more, they’re fundamentally strong, they’re growing businesses, but they haven’t been big headliners.
So they are more attractive valuations.
So it’s almost like introducing a valuation screen to your growth play, which again is, is a bit of a safety guard.
And it’s something that is starting to appeal to a lot of folks who they don’t want to give up on the great train of growth because you know, nothing has suggested anything breaking there yet.
I mean, momentum has slowed down in growth, but they wanna stay invested in that.
But they’re just taking a more precautionary tone with some of these, you know, valuation metrics introduced there.
Cynthia, always a pleasure to get some of your insights and thanks so much for joining us here on the show today.
I really appreciate it.
Cynthia Murphy, who’s the verify investment strategist joining us here on wealth.
Thanks so much.
Thank you so much.