Electric vehicles 'couldn’t get any hotter as a theme,' ETF.com managing editor says

Cinthia Murphy, Managing Editor of ETF.com, joins Yahoo Finance’s Alexis Christoforous to discuss the demand to invest in electric vehicles and the focus on ESG-themed ETFs.

Video transcript

ALEXIS CHRISTOFOUROS: Time now for our weekly ETF Report brought to you by Invesco QQQ. And I want to bring in Cinthia Murphy, managing editor of etf.com. Hi, Cinthia.

I want to start with a very hot sector right now, and that is the EV space. We had Tesla recently hitting a market cap of over a trillion dollars, Elon Musk selling a bunch of his stock to make good on a tax payment. You've also got Rivian exploding in its Wall Street debut. For investors looking to access the EV space within ETFs, where are the opportunities right now?

CINTHIA MURPHY: Hi, Alexis. Yeah, I mean, EVs are the topic of the day. I mean, you couldn't get any hotter as a theme than this. And as it's often the case, ETFs often, various factors into this story. So you can go directly into an electric vehicle, autonomous vehicle, that kind of strategy with funds like VCAR, for example or even something from Ark, like the autonomous driving and robotics ETF, ARKQ.

Then you can go other ways. You can access this theme through some broader ESG, clean energy funds like QCLN or SMOG, which is a low-carbon-footprint type of strategy. Or you can go super-broad, where EVs are just one of many consumer topics. With consumer discretionary funds, it can be as broad and untilited as XLY, just a Select Sector SPDR. Or you can go with an IYK from iShares.

So really, it's a take your pick. It really depends on your conviction level and how committed you are to this theme specifically. And then you choose. You pull the lever that best reflects that approach.

KARINA CONTRERAS: Cinthia, I want to ask you, how much has interest grown in this EV ETF sector? And then how volatile is it? Because we have seen things like Cathie Wood's Ark take a hit when Tesla's stock took a dive, and then now it's higher. It is very volatile, isn't it? So it's not for everyone.

CINTHIA MURPHY: No, absolutely. And just like the big growth stocks of 2020, EVs are the latest version of that. So segments that run this hot tend to cool down dramatically very quickly as well. And 2021 has not been a great year for a smooth ride for anybody who's really into this disruptive tech conversation, which electric vehicles are a big part of that.

So it's not surprising to see this kind of performance. And it really takes a stomach to getting through it. So if you invest in a fund like VCAR, for example, not only it's just an electric vehicle, robotic, autonomous driving type of portfolio. It's super-concentrated. It only has 16 names in it.

And the fund uses options to really try and get some leverage to that performance. So it really is for your die hard conviction in this theme, and you want to go all in, which a lot of people aren't. So we tend to see the demand going to the broader plays, at least for now.

The whole infrastructure conversation is too new. It's in its infancy. Like you asked of the earlier guest, when are we actually going to see money trickling down to some of these projects. Until we actually see that happening, you tend to see the money going to your broader plays where you have exposure to electric vehicles but also to some other themes, other industries, like some semiconductors. You get some of your solar energy and just a clean energy theme.

So a lot of money has been going more towards that. We've seen a lot of money go into the lithium battery ETF. For example, LIT has picked up more than $2 billion this year, which has been a huge take, which is a reflection of the conviction in the story.

But from the battery side, these fully electric vehicle ETFs tend to be pretty small. They're still pretty new. And like you said, they are volatile right at this point.

ALEXIS CHRISTOFOUROS: And I know another hot area, of course, is investing in ESG, socially responsible stocks. And I know that this year alone, something like 40 ESG-related ETFs have launched. So it can be very, I think, confusing for investors looking for opportunities there. Where are you seeing money flow in particular? And where are some of the better bets, to your mind?

CINTHIA MURPHY: Yeah, that's a space where the words green, low-carbon, renewable. I mean, this is their time. So ETFs with these words in the name and trying to offer a flavor of this type of ESG exposure are the thing this year.

So it's a space that keeps gathering a lot of assets and a lot of attention. What's been interesting to watch is that I just read recently a couple of surveys, investor surveys where people are talking about where they're actually going to put their money to work in this theme.

And being socially responsible, so the whole you equity, ethnicity representation, that's the topic that people are saying they're really interested in. But the money isn't going there. So funds that are offering exclusively that social component are lagging the asset growth in the clean energy side, some of the low-carbon side, and just on your broader funds.

So we still continue to see the money go to your broader-- the most like the market strategy. So a fund like ESGU from iShares, which is now a $24 billion ETF, it's basically an S&P 500 ETF with some ESG screening. So you're getting in there, market-like performance that's not really taking a lot of risk to be representative of the ESG theme.

A lot of money continues to flow to what I would call the ESG-light ETFs, as people get more and more increasingly comfortable with these more laser-focused thematic ETFs that require a lot more conviction than some of these broader ETFs.

ALEXIS CHRISTOFOUROS: All right, Cinthia Murphy, managing editor there of etf.com, thanks so much for being with us.