Tom Lydon Explores Top ETF Picks On TD Ameritrade
ETF Trends CEO Tom Lydon recently appeared on TD Ameritrade to discuss the popularity of ETFs, as well as the best ETFs in the market today.
This year has seen record entry into ETFs, and it is evident that ETFs are increasingly sought after by investors. From the genesis of the ETFs that originally followed the S&P 500, Lydon explained that this is a type of fund that continues to grow and develop.
Lydon described ETFs as an area of investment that continues to see innovation; “We have active ETFs, we have innovative ETFs, [and]Thematic ETFs ”, encompassing everything from cannabis to space.
“No matter what type of asset class / theme / model you’re looking for, there’s probably an ETF that represents it; it is fiscally advantageous; it’s also very inexpensive, ”said Lydon explaining why this particular type of fund has become so popular.
One of the most attractive aspects of ETFs as an investment vehicle is their tax efficiency. Compared to similarly structured mutual funds, ETFs save money. When a mutual fund makes redemptions, it has to sell stocks, which are sometimes low-cost basic stocks. The capital gain is then returned to the current shareholders.
ETFs trade in baskets of securities and as such do not generate a capital gain. Another great advantage of an ETF is the flexibility within the portfolio through rebalancing.
Yet, for now, mutual funds remain the benchmark for 401k investment options.
Tom Lydon’s choices for ETFs
As the 10-year Treasury bill begins to rise again and yields drop as low as they are after experiencing 30 years of falling rates, investors and advisers are concerned about bond allocations within a 60/40 wallet. “Part of what we’ve seen there, a lot of people are going for a very short time, or they actually put it in money market funds,” Lydon explained. Money market funds currently hold a record $ 5,000 billion.
For investors looking for alternative income strategies to suit rising interest rates, JPMorgan and Principal both have ETFs that offer an option overlay approach to investing in stocks. These two ETFs are the JPMorgan Equity Premium Income ETF (JEPI) and the Core Ultra-Short Active Income ETF (USI).
For investors concerned about inflation, Lydon recommends ETFs that invest in baskets of commodities, such as the Direxion Auspice Global Commodities Strategy (COM) ETF and the Invesco Optimum Yield Diversified Commodity Strategy No k-1 ETF (PDBC). With gold underperforming last year, COM is a great ETF to consider as it is overweight other areas like agriculture and energy.
Lydon explains that 25% of S&P is in technology-focused FAANG stocks. Investors looking to explore outside of traditional tech stocks would do well to consider the ARK Innovation ETF (ARKK), the Invesco Trust QQQ (QQQ), and the Direxion Moonshot Innovators ETF (MOON). ETFs exposed to innovation, working from home and fast-growing technologies such as these three have great growth potential going forward, Lydon believes.
Turning her attention overseas, Lydon believes that despite the current rattle between China and the United States, the two countries are very intertwined when it comes to markets and infrastructure. He recommends the KraneShares CSI China Internet ETF (KWEB) to those looking to invest in the internet in China, which is currently down 30% from its peak and is “a good deal,” according to Lydon.
Beyond China, the Emerging Markets Internet and Ecommerce ETFs (EMQQ) provides exposure to online Internet companies in emerging markets; Lydon gives examples of the Brazilian version of Uber and companies that handle online shopping somewhere like India. “The prices compared to the higher valuations in the United States are very attractive,” said Lydon.
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