ETFs: 'Big, cheap beta' funds top the list in 2021, ETF Trends CIO says

Dave Nadig, ETF Trends CIO and Director of Research, joins Yahoo Finance Live to discuss the top ETFs of 2021 and trending ETFs oriented toward Chinese stocks and cryptocurrencies.

Video transcript

- Now it is time for our ETF report. And we want to bring in David Nadig. He is the CIO and Director of Research for ETF Trends. Dave, it's been a heck of a year here. I was looking at your notes, $900 billion inflows. Can you break it all down for us?

DAVE NADIG: Yeah, so obviously the biggest year we've ever had in the ETF market. We're going to close at about $900 billion by the time we're all done, and about $670 billion of that going into equities. Most of that into US equities. And about 209 going into fixed income.

A little bit of play and things like commodities, currencies, and alternatives, but really core allocations. I think most interestingly, though, if you look at what's at the top of the list here, it's big, cheap, beta. This is, in some ways, the most boring corner of the ETF market, but that's a great thing.

This is a very positive sign when you see investors making these allocations into big, broad, diversified, inexpensive index products like these. This is solid long term money. There've been plenty going on in the market other than these big boring cheap ETFs out there, but the bulk of the assets have really come into there. I mean, look at the top of this list.

Things like Vanguard VOO pulled in $46 billion by itself this year. Vanguard's value fund, which did not have an incredibly stellar year, pulled in over $15 billion. So this is one of those weird markets where virtually everything had net inflows almost regardless of whether it was going up or down.

- And TIPS also had an amazing run this year, right? Also so much inflow there. What happens to that next year?

DAVE NADIG: Yeah we had about $40 billion into TIPS ETFs, which is a shockingly larger amount of money. I mean it's nearly a decimal point to previous years we've had in TIPS. Now the reasoning is obvious. Inflation is here, it's looking a little less transitory than we feared.

I'm not a big fan of people chasing TIPS here. The old adage is, by the time you're in TIPS, you're probably too late. At this point, if you're looking to position for longer term systemic inflation, I think looking at something like commodities is probably a better play. Commodities had a bit of an up and down year.

We just looked at some energy numbers right there. People have really been focused on the energy component of commodities. But honestly things like agriculturals, base metals, they've had pretty good years as well.

My favorite in this space is the Invesco PDBC. That's sort of a yield optimized version of broad based commodities exposure, gets you out of some of the contango we've seen. But I suspect we're going to see commodities continue to pull in assets really for the next six months.

- Yeah, got to watch that commodities contango. But I want to talk to you about new listings. We have about 400 IPOs listing this year, 600 SPACs. Both of these groups have kind of fallen off a cliff this month specifically as it looks like risk appetite just isn't there. But we did have some SPAC ETFs listed this year. We got a bunch of IPO ETFs. What's the lowdown on all of them?

DAVE NADIG: Yeah well, I mean, obviously a crazy year for new offerings period. You mentioned it's about 1,000 new listings we've had this year, twice what we had last year. We did have a bunch of new funds go into the space. But honestly none of them attracted a lot of investor attention. We have about seven SPAC related ETFs right now. They pulled in about $120 million.

On the flip side of that, though, the three big IPO funds lost about 247 million inflows. So net net, investors really aren't chasing these individual IPOs with big ETFs. The action we're seeing there suggest that those are really retail and institutional investors betting on the individual names, not trying to roll them up into portfolios.

So that makes sense to me. I'm not generally a fan of trying to chase a class like IPOs. Like there's not a particular reason that a, say a new vegetarian meat company, is going to rise the same amount to say a metaverse company. I like to have a sort of economic reason for my things to be in a bucket.

- What about crypto? That took off, as well, with the Bitcoin futures ETF. It was so hot, and then it sort of seems to have fallen away. What happens to that space next year?

DAVE NADIG: Yeah, we had a bunch of launches in the Bitcoin futures market space, which was the only place that the SEC is allowing anybody to play here. Fastest run we've ever seen to a billion dollars. Two days, BITO, which we see on screen, got to a billion dollars.

But then it sort of petered out. We've had a little bit of inflow since then, but I think it's sitting at about a billion and a quarter right now. I think the important thing is what this did was it really invigorated an options market on this. We've seen decent action in the BITO option space. That really gives investors some pretty unique tools that they don't necessarily have access to in traditional financial markets.

Obviously you can get that kind of exposure in the sort of less regulated crypto markets. Going forward, there's not a lot to look forward to from the SEC. They've made it really clear. We're not going to get a clean Bitcoin ETF in the foreseeable future, say in the next year.

So for advisors and investors that are really looking to make deep plays in crypto, if you're not interested in looking at the futures, I advise either going and looking at an equity play, something like Bitcoin which can get you a bunch of crypto related equities in one basket. Or frankly, this is probably the time to start doing the research and getting into crypto directly if you really think it's someplace you want to be.

- Before we go, just have a little bit of time. I want to talk to you about the Chinese internet ETF web. Absolutely phenomenal story. I'm looking at one of my charts, down 9.5%. It looks like this is the worst day ever for it. We are at a five year low. What's going on here?

DAVE NADIG: Yeah, this has been one of the craziest stories of the year. So the last time I checked, it was down about 58% for the year, about 10% of that coming on today. At the same time, it has pulled in $7.6 billion in new money just this year. That's right up there with the highest grossing ETFs in the market right now. It's got to be one of the greatest "catch a falling knife" trades I've ever seen.

It's a very well constructed product. I have no issues with it whatsoever. You are getting core Chinese internet exposure, if that's what you want. You're getting it at fire sale prices today.

I'd also point out that Crane has been on a tear with a bunch of other funds, too. Their carbon ETF Caribbean is one of the best performing ETFs of this year, up 100% with about a billion dollars in inflows. So sort of both ends of the barbell, though, if you will, come from Crane shares.

- Yeah, definitely interesting to track that one this year. Appreciate your insights. Dave Nadig, CIO, and Director of Research for ETF Trends. And I want to say that this was our ETF report brought to you by Invesco QQQ.