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Clean energy ETFs: Avoid ‘chasing high oil prices’ and invest in ‘what comes after,’ strategist says

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Dave Nadig, ETF Trends CIO & Director of Research, sits down with Yahoo Finance Live to talk about ETFs affected by geopolitical tensions in Russia-Ukraine, investing in clean energy ETFs, and which ETFs best protect funds against inflation.

Video transcript

ALEXIS CHRISTOFOROUS: Time now for our ETF report brought to you by Invesco QQQ. Let's bring in Dave Nadig, CIO and director of research for ETF Trends. Dave, good to see you again. We see how headline sensitive this market is right now to the situation between Russia and Ukraine. What kinds of recent trends have you been seeing in the ETF space?

DAVE NADIG: Well, I mean, I think it's reasonable that people have been wanting to play Russia, given that's been the news headline. There is one big and good ETF covering the space. It's the VanEck Russia ETF, RSX. Interestingly, it's had pretty much steady inflows all year long. About $120 billion has flowed into that really just in the last few weeks.

And if you think about playing Russia with a fund like this, it's important to understand what you're getting. Gazprom and Lukoil represent about 16% to 18% of the fund by itself. It's 40% energy, 26% materials, and 16% financials. So it's a remarkably undiversified index for a country index like this.

That being said, I'm always a little reluctant that folks reach for an ETF to play a geopolitical headline like this. However, the fund does do what it says on the tin. And it's up about 5% today on the obvious news that things seem to be calming down a little bit in Russia.

ALEXIS CHRISTOFOROUS: Yeah, I mean, in terms of playing sort of the Russia story, as you were saying, we know that energy is playing a big part in that. Jared was just talking about the activity in crude today, falling by the most in about two months. Where are you seeing money flowing into or out of energy related ETFs?

DAVE NADIG: Well, interestingly, as we've had this sort of rally in oil on the backs of these geopolitical concerns, it's been interesting to see green energy plays actually get a lot of traction. One that we've been following a lot is the Crane Shares Carbon Credit ETF, KRBN. It's up to about $1.7 billion. It's had really consistent inflows. This is investing in the futures contracts for cap and trademark carbon credits around the world, both in the US and in Europe in particular.

It's up about 89% so far this year. It's done-- I mean over the last 12 months. It's done extraordinarily well. And it's an interesting way to invest in the transition, in that low carbon transition that we see. So instead of maybe chasing the high oil price, chase the thing that's going to come after it, which is that transition away from the need for fossil fuels.

ALEXIS CHRISTOFOROUS: Now also, of course, we continue to be on the hunt for yield in this environment. We're expecting interest rates to move higher. Again, today, we saw with the Producer Price Index, that inflation remains high and isn't going away anytime soon. So how are people using some of these ETFs as hedges against inflation and higher rates?

DAVE NADIG: Well, there's been a bull market in new products trying to chase both of these key needs, right, this need for income. Particularly, financial advisors are always looking for income. And obviously, we're now facing an inflation regime that most of us have never seen in our lifetime.

Two products I'd highlight there that are both pretty new, today, we got a launch from Simplify Asset Management. The ticker is CDX. This is a high yield bond fund, invests in sort of traditional high yield, using USHY from iShares, and fallen angels using ANGL from VanEck. But then it adds a hedging layer on top of that to try to profit if you get some sort of spikes in that credit spread that would make you concerned about it. So it's an interesting way of hedging high yield exposure.

On the flip side, if you're worried a little bit more about playing defense with inflation, ASX Astoria launched a really interesting product a few weeks ago. PPI is the ticker. It's the inflation sensitive ETF. This is an actively-managed fund run by John Davi. He's one of the best sort of macro allocators I know in the space. And it moves between TIPs, sensitive commodities, and sensitive equities, and will do that on an active and reactive basis. I think it's a really interesting way to take a run at that space without just buying TIPs, which is probably a little bit late.

ALEXIS CHRISTOFOROUS: Yeah, nice to diversify there for sure. Real quick, Dave, what are investors' appetite for tech, especially those mega-cap tech ETFs right now?

DAVE NADIG: Well, what we've seen is an interesting diversion between sort of non-profitable innovation tech and sort of more traditional technology-- Apple, Microsoft, big software company, Cisco, things like that. It really has flipped on almost a day-to-day basis, whether or not one version of technology is in favor or not.

At the moment, we're definitely back on everybody buying everything mode. That may just be the relief rally coming off some of these tensions we've had in the Ukraine. But I do think we've had a bit of a reset on that non-profitable tech sector. And investors are starting to reallocate into it.

ALEXIS CHRISTOFOROUS: All right, Dave Nadig of ETF Trends, always a pleasure. Thanks for stopping by.

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