Understanding Current Trends in ETFs with Matthew Bartolini, CFA, CAIA, #206
What are the current trends with ETFs? What’s happening in the fixed-income market? How can investors tackle current challenges? Matthew Bartolini, CFA, CAIA—the head of ETF Research at State Street Global Advisors—joins me to dissect the ETF market and how investors can handle volatility.
Matthew believes the ETF market will only continue to grow and create opportunities for long-term wealth. He shares how to navigate the factors that impact the market—including Federal Reserve policy, elections, and general trends—in this episode of Retire with Ryan.
You will want to hear this episode if you are interested in...
[1:30] Learn more about Matthew and State Street
[2:27] The research on investing and election years
[4:54] The current trends in Exchange-Traded Funds (ETFs)
[9:20] What’s happening in the bond market
[11:21] Balancing risks while prioritizing diversification
[13:52] Understanding volatility and yield curves
[15:37] Why not put all of your money into corporate bonds?
[17:19] The uncertainty we’re facing with the Fed
[20:42] Build a strong foundation for your future
The current trends in ETFs
ETFs are an integral part of portfolio asset allocation. There are currently over $9 trillion in assets invested in ETFs in the United States. Matthew points out there are presently three drivers that underpin those flow trends:
Low-cost ETFs: These ETFs have a low expense ratio (some as low as 0.02%) and typically cover the S&P 500, bond market, small caps, etc. These ETFs account for 60% of the flows this year (prioritizing cost and tax efficiency).
Active ETFs: Active ETFs have taken off in the past few years. Now, in May 2024, they’ve taken in 100 billion dollars of inflow. Active ETFs are actively invested in a variety of stocks the manager thinks may perform the best.
Fixed-income ETFs: Fixed-income ETFs expose you to a variety of bonds. These funds have taken in $200 billion every year for the last five years. This speaks to the increasing use cases within bond markets.
Higher rates have dented returns in the bond market. The Bloomberg US Aggregate Bond Index—the benchmark for bonds—is down this year in a double-digit drawdown. As interest rates go higher, bond prices go lower, which leads to losses. Volatility is at some of the highest levels.
The uncertainty we’re facing with the Fed
The consensus was that the Fed was going to cut rates by 100 basis points by July 2024 but the Fed didn’t raise or lower rates at their last meeting. Because of this, everything has been repriced to be higher for longer because inflation has been stubborn. The prediction is that things will hold steady.
If rates aren’t going to be cut, what do you do? Do you take on credit risk? Matthew recommends balance. We can mitigate some uncertainty by owning areas of the bond market that have less rate volatility (which may be something like floating rate senior loan exposure or intermediate corporate bonds).
Everyone is trying to figure out the Fed’s next move, and it just can’t be predicted. It’s like trying to predict which NFL Rookie will perform the best.
Build a strong foundation: Stick with your asset allocation
Your asset allocation is your foundation. Just like you can make small alterations to your home to meet the demands of the current housing market, you can make changes to your portfolio to meet the demands of the current market environment.
If you know the volatility in your bond portfolio is higher than normal, instead of removing bonds from your portfolio, you adjust your allocation. The changes can’t be into one thing and out of the other but instead small course corrections.
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
Connect with Matthew Bartolini on LinkedIn
Elections and Equities: The Impact of the US Election on Sector Investing
Get more information on trends at SSGA.com