BONUS ETF of the Week: Todd Rosenbluth on Fixed Income and Global Equity ETFs

VettaFi’s Head of Research, Todd Rosenbluth, discussed fixed income and international equities in this “ETF of the Week” bonus podcast with Chuck Jaffe of “Money Life.”

Rosenbluth told Jaffe that VettaFi has seen “very strong interest in international equities,” with international equities bringing in nearly $30 billion in inflows at the start of the year, while U.S. equity ETFs saw approximately $6 billion in releases over the same period. So, VettaFi asked the investment community what they think of developed international markets and what will happen in the next year.

International investment: a better alternative

During a walk webcast Hosted by VettaFi, participating advisors were asked how they thought developed international markets would fare relative to the United States in the future. Most respondents (54%) said they believe international equity ETFs will outperform the US over the coming year, while around a quarter said they expect a similar level of performance for two markets. Only 21% said they thought the United States would outperform international markets.

“International investing seems like a better alternative for many investors,” Rosenbluth said.

And with this information provided by financial advisors, VettaFi went to seek investment ideas. The biggest of them is the Vanguard FTSE Developed Markets ETF (VEA)which is slightly larger than the iShares Core MSCI EAFE (IEFA).

“The reason I think investors should pay more attention to VEA is that it’s more broadly diversified,” Rosenbluth said. “VEA…has exposure to Canada that you wouldn’t find in an EAFE-based market. Thus, the VEA is a good way to gain exposure to (international equities).

And while most international equity ETFs tend to be more indexed, Rosenbluth also wanted to highlight an actively managed ETF. Therefore the Harbor International Compounders ETF (OSEA) is an actively managed option with just under 40 stocks of faster-growing, high-quality companies that Rosenbluth thinks “people who believe in active management should definitely take a closer look.”

Rosenbluth explained that investors are becoming more comfortable with active management in the ETF wrapper.

“We’ve seen the growing adoption of actively managed ETFs,” he said. They represent around 5% of the overall ETF market. Last year, they accounted for around 15% of total ETF flows. In February, they were closer to 40%.

Growing interest in fixed income securities (short term)

Another area VettaFi is focusing on is fixed income, an asset class that investors are increasingly turning to this year, especially shorter-duration products.

“We’ve seen investor interest in relatively safe fixed-income products,” Rosenbluth said, citing short-term Treasury ETFs that protect against downside risks like the Vanguard Short Term Cash ETF (VGSH) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) which have been popular.

Rosenbluth also noted that while we may see the Federal Reserve suspend rate hikes sooner, there are still many concerns about higher-yielding or longer-dated Treasuries.

“I think there’s just too much risk in going through the duration,” he said. “We’re likely to see more volatility in the fixed income market, and I think investors would be in a better position to earn the 4% they can through short-term cash ETFs instead of taking that risk of interest rate.”

Four bulls and a bear

Later in the interview, Rosenbluth shared his thoughts on some ETFs that listeners have been asking for more information on. The first of these ETFs was the Invesco S&P 500 Equal Weight ETF (RSP)in which Rosenbluth shared his “bullish” thoughts on this “good opportunity”.

“I would be bullish on this ETF because we’re seeing individual and specific stock issuance increase, and you’re getting the benefits of diversification,” Rosenbluth said. “So better than having heavy hitters in your portfolio, RSP is an alternative to getting the S&P 500 in a more diversified way.”

The listeners also wanted to know the Horizon Kinetics Inflation Beneficiaries ETF (INFL), an actively managed ETF that invests in companies that are likely to benefit from persistent inflation. While we’ve seen the CPI and PPI numbers come down a bit, “the inflation is still there for a while,” according to Rosenbluth.

“I think exposure to … energy and materials companies can provide great value, so INFL is a good ETF,” he added.

Regarding the Algerian MLP ETF (AMLP)Rosenbluth said, “It’s a good sequel in the energy market.”

“These are higher quality energy infrastructure companies that need to pay dividends,” he said. “It’s a higher quality way to get energy exposure. AMLP is a good ETF.

Rosenbluth was also optimistic about the Vanguard Tax-Exempt Bond ETF (VTEB)which he says would make a good “bonus position” for some of the fixed income ETFs he recommended earlier in the episode.

“VTEB is a very low-cost, well-diversified and very liquid ETF,” he said. “It’s a great way to get exposure to the municipal bond market, which is holding up quite well.”

And after being four out of four in terms of buy recommendations, that changed with the fifth and final ETF Rosenbluth was asked about: the SPDR Portfolio High Yield Bond ETF (SPHY). Although it has the advantage of being cheap, investors shouldn’t be too comfortable taking on too much credit risk.

“In this environment, I think investors are looking for the relative safety of higher-quality corporate bonds and Treasuries and are less comfortable taking on that credit risk,” he said before commenting. adding: “I think there are just better ways to get revenue exposure.”

Listen to the bonus episode here:

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