What ETFs Tell Us about the Current Investment Picture

What ETFs Tell Us about the Current Investment Picture Though the S&P 500 index is up around +6% for the year so far, looking at that statistic in a vacuum is somewhat misleading – if you start the clock when the market reached its all-time high on January 26, stocks are actually flat for the year.1 That’s because the market underwent a pretty steep correction in January, and has been fighting to eclipse its all-time high ever since. As of this writing, it’s just barely at that January 26 level again. It Took the S&P 500 Nearly 7 Months to Retouch Its All-Time High Source: Federal Reserve Bank of St. Louis --------------------------------------------------------------- [Give Yourself Every Investing Advantage]( At Zacks Investment Management, we believe knowledge is an investor’s greatest advantage. Our comprehensive Savvy Investors Guide provides investing insight that we think will help you make better investing choices. You’ll learn about: - The Impact of Fees on Investments - Actively Managed Investing vs ETF Investing - Determining the Value of an Advisor - The Primary Trait That Successful Investors Have in Common [Get the full story on all of this and more. Download your copy of “The Savvy Investor’s Guide.” 2]( --------------------------------------------------------------- As the market has navigated rough seas and struggled to find direction, there’s been one area of the investment world that has continued moving firmly on a growth path: Exchange Traded Funds (ETFs). As many readers know, Zacks Advantage builds and actively manages investment ETF portfolios, as we believe ETFs offer a great opportunity and cost-effective diversification possibilities. While many investors use ETFs ‘passively,’ we believe we can use our forecasting abilities and deep research to actively manage ETFs and create alpha for our investors. When the S&P 500 and global markets hit a rough patch at the end of January, the first week of the correction saw over $1 trillion of ETF shares trade hands – with no service disruptions to speak of. In the choppy weeks that followed, investors continued to transact seamlessly and efficiently in the ETF markets. Even as prices declined, the ETF structure functioned just as it should have, in our view. The S&P 500 finished the first quarter of the year down -0.8%, but flows into ETFs continued to increase, reaching close to $60 billion in the U.S. and $128 billion globally, according to Bloomberg. In our view, investors continued to buy ETFs even as the market suffered losses because of their confidence and an increased desire to use ETFs as the means to transact in the capital markets. We think this trend will only continue to grow, and we’re excited to be at the forefront of actively managing ETFs. Digging a little deeper and analyzing the patterns and trends in ETF markets can provide us insight in the markets. Doing this type of analysis, in our view, can also show us what investors are doing and thinking. Here are our 3 observations from the first half: - Investors Appear More Bullish and More Intent on Diversifying: in the first quarter, investors poured into Emerging Market and International ETFs, while also shifting away from defensive sectors like utilities and telecom. These shifts, on both fronts, signal a ‘risk-on’ attitude from investors, shifting not only away from U.S. stocks but also the sectors that tend to perform better in economic recessions or at the end of expansions. Investors also tilted towards dividend-growth ETFs, which underscores a focus on growth and quality. - Investors are Favoring Shorter-Term Bonds: Interest rates are on the rise, and with inflation and jobs numbers coming-in strong, it appears as though the Federal Reserve will maintain its posture of gradually ticking rates up further in the back half of the year. Rising interest rates means falling prices, which can hurt more for bond investors on the long end of the curve. We’ve also seen an increase in flows to TIPS and floating rates ETFs, which could underscore growing investor concern about inflation. - Long-Term Investors are Finding a Home in ETFs: some investors are content to own broad market index ETFs, perhaps because they are new to investing or simply want to mimic the index with little concern for generating alpha. Long-term investors also use road market ETFs to establish legacy positions, since such ETFs provide diversification and little need for rebalancing or active trading. Q1 saw net positive flows across asset classes, from developed market stocks and bonds to broad emerging markets stocks, which saw more than $22 billion added in the quarter.3 Bottom Line for Investors Whether the market goes up, down, or moves sideways, investors are increasingly turning to ETFs as a solution for gaining access to the capital markets and for pursuing short and long-term investment goals. We believe flows into ETFs demonstrate not only confidence in the security, but also a preference for the low-cost, targeted approach that ETFs offer. At Zacks Advantage, we believe there is a need for innovation in the financial sector, and our approach to investing involves the use of technology and research to make investing easier, more fun, and less expensive. That’s why at Zacks Investment Management we have innovated with new financial technologies and now offer an actively managed robo advisor that: - Automates the advising process - Invests exclusively with ETFs - Uses technology to recommend the appropriate mix of equities and bond ETFs to help achieve your investing goal and specific risk tolerance. - Lowers fees and expenses For further information, we recommend you read our report: The Savvy Investor’s Guide [Get your copy of The Savvy Investor’s Guide 4]( © Zacks Investment Management | [Unsubscribe]( 1 Yahoo Finance, August 17, 2018, [finance.yahoo.com]( 2 Zacks Investment Management may amend or rescind the “Savvy Investor’s Guide” offer for any reason and at Zacks Investment Management’s discretion. 3 Blackrock Blog, May 4, 2018, 4 Zacks Investment Management may amend or rescind the “Savvy Investor’s Guide” offer for any reason and at Zacks Investment Management’s discretion. 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