In the exchange traded funds industry, records are seemingly always being shattered and that’s the case again in 2021.
As of Dec. 17, $509.4 billion flowed into ETFs this year, topping the previous annual record of $476.1 billion notched in 2017.
Record flows of fixed income ETFs in 2020? Check. Record adoption of environmental, social and governance ETFs? Check.
Two more fun facts: The rates of ETF closures and new product launches this year are also new highs.
All of that is to say a lot is happening with ETFs this year, and it’s not a stretch to say investors can expect more of the same in 2021.
On that note, here is an admittedly small group of ETFs investors should keep up with in 2021. The group addresses some of the trends that could take center stage in the new year, including enthusiasm for bonds, ongoing affinity for ESG strategies and the growth/value chasm.
SPDR S&P 500 Value ETF (SPYV)
For years, there’s been talk of a value resurgence and more often than not, it proved to be just idle chatter as growth stocks are dominating for the better part of a decade.
This time could be different: President-Elect Joe Biden is seen as a positive catalyst for value stocks.
The SPDR S&P 500 Value ETF (NYSEARCA: SPYV) is up more than 14% in the fourth quarter, indicating the fund is getting some love from Election Day results.
SPYV, which tracks the S&P 500 Value Index, is a bet on a post-pandemic economic recovery due to its cyclical leanings. Financial services and industrial stocks combine for 31% of the ETF’s roster.
Part of thesis here revolves around the oft-cited anecdote that the valuation gap between growth and value is as wide as it’s ever been, but it remains to be seen if that’s a credible spark for SPYV in 2021.
Note there are dozens of large-cap value ETFs for investors to consider. SPYV is highlighted here because it tracks a well-known index. With its annual fee of just 0.04%, or $4 on a $10,000 investment, it’s one of the cheapest funds in this category.
Invesco QQQ (QQQ)
Speaking of the growth/value rivalry, one of the premier avenues for playing the mega-cap growth side of the equation is the Invesco QQQ (NASDAQ: QQQ). QQQ, famed for tracking the Nasdaq-100 Index, garnered $17.23 billion of inflows this year as of Dec. 24. Just two ETFs top that total.
Helped by above-average weights to the likes of Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN), QQQ has a long track record of topping competing S&P 500 ETFs and crushing value ETFs in the process. An overlooked benefit of QQQ is that it provides significant exposure to companies behind some of the world’s most valuable brands, and that’s meaningful for investors.
“Brand management can hold the key to financial performance in many respects. After all, consumers will go with what they trust and know; brands with such recognition and pull are in a constant position to succeed,” according to Nasdaq research.
“As such, a bevy of Nasdaq-100 companies were recognized as among BrandZ’s Top 100 Most Valuable Global Brands 2020.”
ARK Genomic Revolution ETF (ARKG)
The ARK Genomic Revolution ETF (CBOE: ARKG) is the thematic inclusion on this list and a worthy one at that. Obviously, ARKG hails from the famed stable of ARK actively managed ETFs, and it’s one of just two that doesn’t feature a substantial allocation to Tesla (NASDAQ: TSLA).
By some accounts, companies engaged in DNA sequencing, artificial intelligence and gene therapies have the potential to be the next generation of FANG stocks. That’s an audacious thesis, but ARKG has myriad long-term catalysts, including the evolution of precision medicine and declining genomics costs.
ARKG has outperformed the S&P 500 Health Care Index in three of the past four years and by substantial margins.
VanEck Vectors Green Bond ETF (GRNB)
The smallest of the funds highlighted here, the VanEck Vectors Green Bond ETF (NYSEARCA: GRNB) is important because it represents a growing intersection between ESG and the bond market. Specifically, the “E” because green bonds are debt issued to fund environmentally friendly projects.
Consider GRNB as ESG bond play with growth benefits and some positive leverage to the incoming Biden administration.
“The U.S. green bond market is far from where it should be based on the size of its bond market, and even further from where it needs to be to finance a transition to a low carbon economy,” writes William Sokol, senior ETF product manager at VanEck. “There is hope that President-elect Biden’s administration could help spur U.S. green finance and investment, including green bonds.”
Todd Shriber owns shares of ARKG.
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