Exchange-traded funds had a banner 2021 in terms of asset growth, which continued a trend from much of the past decade as investors increasingly flocked to these low-cost, tax-efficient investment vehicles at the expense of mutual funds. Can the fun continue in 2022? And where will the action be in ETF investment ideas?
Net inflows into U.S.-listed ETFs slightly topped $900 billion last year, which easily beat the previous record flows of $500 billion the prior year. The U.S. ETF industry ended 2021 with assets of $7.2 trillion.
Todd Rosenbluth, head of ETF and mutual fund research at CFRA, says he expects to see more inflation-related products come to market this year. “I think there’s the belief that inflation will be around longer than we initially expected, so there will be products offering more fixed-income exposure to protect against inflation or trying to benefit from it by using equities,” he says.
To fight inflation on the equity front, investors might seek out equity ETFs benefiting from rising prices in commodities, energy or materials. Rosenbluth highlights two such funds. One is the Horizon Kinetics Inflation Beneficiaries ETF (INFL), which debuted in January 2021 and gathered more than $800 million in assets in its first year. The fund invests in companies whose revenues are expected to grow with rising consumer, producer, raw material or assets prices. That includes companies involved in energy, mining, transportation and real estate.
A similar product, the AXS Astoria Inflation Sensitive ETF (PPI), launched on this year’s first trading day. This fund is designed to hedge against inflation with multi-asset exposure to equities (particularly cyclical stocks in the areas of financials, energy, industrials and materials), commodities and TIPS (Treasury Inflation-Protected Securities).
He notes that Capital Group, the company behind the American Funds, was expected to come to market early this year with its first suite of actively managed, core-like equity and bond ETFs. “We had Federated [Hermes] recently enter the market with a couple of fixed-income ETFs and will likely expand their lineup,” he says. “And we’ve had firms like Fidelity and T. Rowe Price that have moved into the active equity [ETF] space and likely will continue to expand in 2022.”
Another area to watch involves thematic ETFs. Funds focused on infrastructure and electric vehicles generated significant interest last year, and Rosenbluth says that agricultural technology, artificial intelligence, blockchain, digital payments and food innovation are among the potential big themes in 2022.
