Page 43 - Investment Advisor October 2022

ETF ADVISOR

By Dinah Wisenberg Brin

Income-Generating ETFs Popular in

Tough Market

ETFs featuring dividend strategies, munis and high-yield bonds

have seen strong inflows, according to Dave Nadig.

xchange-traded funds have been
enjoying massive inflows in a
Eyear marked by high inflation
and a bear market, with income-produc-
ing ETFs drawing significant investor
interest. ETFs are now the vehicle of
choice for most active investors and are
becoming the default choice for most
long-term investors as well, accord-
ing to Dave Nadig, financial futurist at
research and consulting firm Vetta Fi.
The $6.6 trillion ETF industry in the
U.S. has seen $375 billion in net inflows
this year during the worst financial mar-
ket in decades, and the funds are flowing (VNQ), also have attracted inflows, firm noted that ETFs overall have expe-
across the board, including billions of Nadig explained. rienced their second-highest net inflows
dollars in positive inflows into equities, “Anything that’s throwing off income” on record year to date.)
commodities, currencies and alterna- is drawing inflows, Nadig said, noting ETF flows mirror what investors see
tives, he explained recently. “It’s been that people flood to quality during big in the broader mutual fund and underly-
one of the circumstances where the drawdowns. Many advisors and inves- ing stock markets, he noted.
entire ETF universe has caught a bid,” tors see dividend payers — and spe- It’s important to remember that the
Nadig said. cifically dividend payers with long track ETF is just a wrapper that doesn’t nec-
People see underperforming, over- records of maintaining and growing div- essarily make for a safer investment,
priced active mutual fund managers, idends — as the highest quality part of Nadig said. There are incredibly safe
“they finally capitulate, they sell and the U.S. stock market, so they are often ETFs that hold cash and “phenomenally
where do they put that money? They put used as a quality proxy, he noted. risky” ones in which investors theoreti-
it into very cheap, very boring ETFs,” he The most popular ETFs include cally can lose all their cash in one day,
said. In a high-inflation environment, “big, boring equity funds” offering “big, he added. “The wrapper is the wrapper,
“income is really the place where people cheap beta,” like the SPDR S&P 500 and the risk comes from what’s inside.”
have been headed,” Nadig said in an Trust (SPY); the tech-oriented Invesco While it’s rare to find ETFs in 401(k)
interview, noting the launch of many QQQ ETF (QQQ), which tracks the plans, ETFs make attractive targets for
income-focused ETFs this year. One of Nasdaq 100 Index; and the Vanguard retirees rolling cash out of those plans
the best, the JPMorgan Equity Premium Total Stock Market Index Fund ETF and looking for new places to invest,
Income ETF (JEPI), generates “a mon- (VTI), he said. “It’s pretty straightfor- Nadig said, noting that ETFs’ inflows
ster yield” using dividend-paying stocks ward stuff that we’re all very familiar have surpassed mutual funds’ for years.
and options, Nadig said. with,” Nadig explained. He noted significant interest in ETFs,
“That hunt for income, we’ve seen (Another consulting firm, ETFGI, including innovator funds and others,
it in dividend strategies, we’ve seen it recently reported that fixed income that use options to allow investors to
Adobe Stock bonds,” he said. Real estate ETFs, like $27 billion in net inflows in July alone, have pulled in $7 billion year to date.
exchange-traded products saw nearly
limit downside. Options collar strategies
in munis, we’ve seen it in high-yield
While the launches of single-stock
the Vanguard Real Estate Index Fund
for nearly $93 billion year to date. The
OCTOBER 2022 INVESTMENT ADVISOR 41