ETF Prime: ETF 2023 Industry Insights with Dave Nadig


During the first 2023 episode of ETF Prime, host Nate Geraci and Dave Nadig, Financial Futurist at VettaFi, predicted the coming year in ETFs and financial markets. Nadig also discussed the potential implications of longer-term asset management trends, including crypto, ESG, direct indexing, and rising liabilities.

After taking a moment to catch up, Nadig and Geraci started discussing the next To exchange conference, which will begin on February 5e until February 8e at the Fontainebleau in Miami Beach. “Really excited for some of the things we’re going to be able to stage there,” Nadig said, with Geraci noting that ETF Prime will record live at the event.

Look into the crystal ball of the market

After a year in which the S&P was down 18%, bonds were down 13% and just about every asset class except commodities was down for the year. 2022 cracked just about every crystal ball (while pouring gasoline on tarot decks and lighting them up for good measure).

That said, because predictions are still fun and useful thought experiments, Geraci and Nadig have made a few for 2023, fully anticipating that some of them won’t come true.

fed up

Nadig began by looking at the consensus, with many year-end elements all agreeing that the first half of the year will be soft, the Fed will need to pivot and markets will rally at the end of the year.

Geraci expressed concern that the Fed could crush demand when there are genuine supply issues that have not been resolved.

“I think there are a lot of people I respect who think the Fed has already made a policy mistake, has already been too aggressive for too long,” Nadig confirmed. He thinks the consensus might be right, with a weak start to the year that sees inflation moving in the right direction, but more data showing the impacts of rising rates on the workforce. While generally agreeing with the consensus, Nadig noted “I’m skeptical of rate cuts in calendar year 2023.”

Investors play

Despite the bumpy 2022, no investors ran to cash out. Nadig explained that’s because ultimately there’s no alternative — US investors have been conditioned by such a long period of no rates to invest in stocks. “It’s been thrashed around in the heads of millennials and gen Xers for decades at this point. The irony is less true than it has been in 30-40 years. Nadig thinks the products of portfolio, hedging products and rate-based products, and many more, will start to see their time in the sun.

Making what he described as a “wussy” call, Geraci said, “I expect bonds to make a big comeback this year.” Gold is also attractive, according to Geraci. Gold “generally marches to the beat of its own drum,” he said, pointing out that the fall in crypto could help make gold more attractive as a “tested” store of value.

Nadig is more skeptical of gold. A strong dollar makes it difficult to build a case for gold to get a huge boost, as Nadig observed, “I don’t think it’s peaked over $2,000 more than a year. or twice during the entire crisis period during the pandemic.”

Records of influx, exchanges and launches

2021 marked the peak of ETF inflows, but in some ways 2022’s performance was even more remarkable. Despite the challenges facing the markets, ETFs saw inflows of $600 billion with huge trading volume and numerous product launches. When asked if the 2021 record of $900 billion could be surpassed, Nadig said it was not only possible, but likely. “A lot of this is a reconfiguration year,” Nadig said, with advisers and investors considering how they want to position themselves in a year that’s likely to be less dramatic than the last. “That lack of drama is great for starters because it means a lot of people are going to watch their statements.”

A trillion dollars is entirely possible barring any type of mishap. Nadig saw potential danger in the ETF space if the market got weird and idiosyncratic and continued to move fast enough to burn their hands and wear down investors.

“Just think about how the bond side of ETF balance sheets has sat dormant for so long,” Nadig observed, noting that many interesting bond funds have recently launched and look well positioned to suck in more inflows in 2023. think fixed income will be the story of the year. Innovative new products could help further boost the rise of bond ETFs.

Factor-Based Resurgence and Return of the ARK?

While not suggesting that the smart beta heyday of the 2010s will return, Nadig did suggest that factor ETFs could see a resurgence given some of the high numbers they put up.

ARK’s flagship fund, the ARK Innovation ETF (ARKK) had a year of performance to forget despite continued cash inflows as investors doubled down on the fund. Geraci asked Nadig what the future of ARK will look like, and Nadig offered that getting his teeth kicked is part and parcel of innovative technology. Their Tesla positioning aside, under the hood, ARK is always on the lookout for disruptive companies with big ideas. They’re not just doubling what they already have, but looking for the next big thing. “The question is going to be the timing. In fact, I suspect they’ll get the right calls,” Nadig said, the issue will be timing their calls and getting into the right companies at the right time.

Morgan Stanley is moving in 2023

Morgan Stanley could take steps into the ETF space. According to Nadig, “In two to three years, we might be able to talk about them in the top 10 and on the rise.” With $5 trillion in wealth and distribution networks galore, Geraci and Nadig see Morgan Stanley as a future big player in the ETF space.

The death of the 60/40 portfolio has been exaggerated (or has it?)

VettaFi’s Lara Crigger predicted on the latest episode of ETF Prime that the 60-40 could be over, causing quite a stir. Nadig said he agreed with Crigger, but not the way many interpreted his comments. “It’s not that 60/40 is dead because this asset allocation is a bad idea. I think it’s the idea that you can come up with this abstraction that’s monolithic and say it’s an accurate benchmark for the average wallet is silly. Nadig said there are several ways to slice and dice an allowance. US equity allocation versus non-domestic allocation? What are your positions at two or three rates? What are your uncorrelated assets? He noted that funds like Cambria Trinity ETF (TRTY) don’t have a 60/40 portfolio. She has a complex portfolio with a variety of assets. Funds like IMGP DBI Managed Futures Strategy ETF (DBMF) also had killer years, paving the way for the growth of more complex uncorrelated products and alternatives in 2023, although it could be six months too late to ride the alternative wave.

Crypto Indices 2023

When asked if a crypto comeback is possible in 2023, Nadig said he doesn’t believe we’ll see the advisor space get a ton of hype for it. He thinks there has been a crypto recalibration. Though he’s quick to say he feels bad for people who lost money or got screwed over in the FTX debacle, Nadig said he’s optimistic about what this space could bring and that he saw a potential opportunity in this recalibration of space. “It facilitates innovation because it reduces the temptation of these kinds of scams.”

Nadig doesn’t see a spot Bitcoin ETF in 2023, but thinks there will be some interesting happenings with the GBTC SEC lawsuit and Valkyrie’s long-term takeover bid for GBTC.

Beyond 2023, Nadig thinks they will be playing in a sandbox for a few years before putting in place the necessary regulations and protections. He does not see it as happening in this congress or even this presidency, but possible in the one to follow. Then there are a number of reasons to get excited about what cryptocurrencies can lead and do on their own. “I think we can move into a world of tokenized asset management where we can choose the appropriate ways the system works and not just fall over it, but we need that bridge.”

ESG

Looking to the future of ESG investing, Nadig said, “I will continue to point out that the ESG versions of the S&P 500 beat the S&P 500 for every holding period you want to worry about and go watch for every holding period. detention from today and go back.

Although US investors have become hesitant towards ESG and flows have been largely flat, global investors remain very interested and pouring money into ESG funds. “It’s just the direction the world goes and the United States decides how much we care.”

Direct indexing

As direct indexing proliferates, Nadig pointed out that it won’t be an ETF killer, but could be a useful tool for investors. “You don’t simplify your life, you make your life much more precise. It takes time and energy,” Nadig said, pushing back against the idea that direct indexing would simplify everything.

The rise of passive investing

Investors continue to grow their money in passive products. “We live in a world where corporate news is now being disseminated rapidly and violently absorbed by prices that are at times downright shocking,” Nadig said, continuing, “but at the same time, without it, the drumbeat of the markets going to be up and to the right.

Geraci argued that the oscillating nature of the passive market simply means that active managers can set prices faster.

Nadig thinks it’s healthy to question the impacts of what you’re doing, however, saying “what are we missing and would that create some systemic instability?” This is a question we should be asking ourselves every day about liabilities. This is a question we should ask ourselves every day in crypto.

Listen to the full episode of ETF Prime with Dave Nadig:

For more ETF Prime podcast episodes, visit our Prime ETF Chain.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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