22 ETFs to Watch in '22

Episode Summary

Executive Summary: The episode showcases Bloomberg’s "22 ETFs for 2022" list, with analysts highlighting thematic, crypto, ESG, bond, and value funds they believe are worth watching. The discussion emphasizes how investor behavior, product structure, fees, and ecosystem effects can matter as much as raw performance, with recurring themes around ARK, Bitcoin exposure, China tech, EVs, carbon credits, and deep-value opportunities.

Main Topics: 22 ETFs for 2022 watchlist (Priority: 5/5): The core segment is a curated set of ETF ideas the Bloomberg Intelligence team thinks merit attention in 2022, not formal advice. The picks are framed as products to monitor for trends, flows, and investor behavior. Thematic ETFs and investor concentration (Priority: 5/5): The conversation highlights how thematic ETFs have become large enough to generate meaningful dispersion in performance. Products like MVPS and ARKK reflect investor demand for concentrated innovation exposure. Crypto and blockchain exposure (Priority: 5/5): Several picks focus on Bitcoin-related vehicles: BITO, GBTC, and BITS. The discussion centers on futures roll costs, spot vs. futures exposure, discounts to NAV, and the possibility of regulatory change. ESG, activism, and voting-based strategies (Priority: 4/5): The panel contrasts traditional exclusionary ESG with activist and proxy-voting approaches such as VOTE and freedom-screened emerging-market exposure like FRDM. China and electric vehicles (Priority: 4/5): Rebecca’s picks focus on China’s EV and internet sectors, arguing there is rebound potential after 2021 weakness and regulatory pressure. China’s growth and thematic niches are presented as long-term opportunities. Rates, bonds, and defensive hedges (Priority: 4/5): Eric and James discuss TLT, USMV, and rate-hedged bond ETFs as defensive tools. The broader point is that investors may seek simple hedges if 2022 becomes more volatile. Value and deep-value contrarian plays (Priority: 3/5): The episode closes with a case for deep value and international small-cap value as potential beneficiaries if market leadership rotates away from growth.

Key Arguments: Thematic ETFs now form a major, fast-growing segment, but dispersion among funds is wide, so product selection matters more than ever. ARKK remains a durable brand despite a major drawdown because investors still want a high-upside innovation sleeve alongside cheaper core beta. BITO is a strong trading vehicle but may be a poor long-term hold because futures roll costs can compound materially. GBTC’s deep discount to NAV creates a potential catalyst if conversion to an ETF is ever approved, though timing is highly uncertain. ESG is evolving beyond simple exclusion screens toward proxy voting and freedom-based country screens, as seen in VOTE and FRDM. China internet and EV exposure may rebound because 2021’s selloff and regulation left pockets of value, while EV adoption and related innovation remain strong trends. Inflation and higher-rate expectations could support TLT, copper miners, and rate-hedged bond funds as portfolio hedges. Deep-value and international small-cap value funds could benefit from a regime shift if growth leadership fades and mean reversion returns.

Data Points: ARKK 2021 drawdown: down 40% since February - Used to illustrate the fund’s volatility and why some investors still view it as a long-term asymmetric bet. ARKK long-term return: about 35% annualized over five years - Cited to explain why the fund retained investors despite its 2021 slump. SARK launch performance: up 22% since November launch - Referenced as evidence that the inverse ARK fund had an unusually strong start. MVPS expense ratio: 49 basis points - Discussed as the price for a concentrated thematic-all-star ETF. Thematic ETF assets: 161 billion - James notes thematic ETFs are now the second-largest ETF sector by assets. Carbon ETF assets: over 100 million in a couple months - The physically backed carbon-allowance product was described as unusually successful in Europe. BITO roll costs: 2.7% after about two and a half months - Used to show the drag from futures roll in Bitcoin exposure. Potential annual BITO roll cost: over 12% annually - Extrapolated from early roll-cost experience. VOTE assets: almost 300 million - Used to show early traction for proxy-voting ESG strategy. ESG/rate-hedged asset flows: over $2 billion in 2021 - James says rate-hedge ETFs attracted significant new assets amid inflation and Fed-rate concerns. FRDM assets: over 100 million - Noted as a milestone for the freedom-screened emerging markets ETF. EMXC assets: over $2 billion - Used for comparison with FRDM and to highlight BlackRock distribution strength. GBTC discount: about 20% to 22% discount to NAV - Used to explain the potential upside if the trust converts to an ETF. BTC futures ETF trading volume: never below $100 million per day since launch - Joel and James note unusually strong trading activity in BITO. TLT market-hedge example: S&P down 35% vs. TLT up 34% in 2008 - Used to support the argument that long Treasuries are a reliable equity hedge. USMV flow behavior: roughly a second bite at the apple question after outflows - Eric argues investors may not return easily after abandoning low-volatility strategies. COPX asset growth: about $1.7 billion, from roughly $200 million 16 months earlier - Used to show how copper miners benefited from inflation and reopening themes. KWEB inflows: about $7.5 billion by year-end - Highlights massive investor buying despite a sharp price decline. KWEB 2021 performance: down more than 50% - Used to illustrate the scale of the selloff that attracted dip buyers. Chinese EV ETF returns: more than 50% - Rebecca cites strong gains in China EV-related products. Metaverse ETF assets: more than $2.3 billion in December - Shows how quickly the metaverse theme had scaled globally. US metaverse ETF assets: more than $1.4 billion AUM - Used to show the U.S. as the leading metaverse ETF market. Meta ETF launch success: third most successful of about 450 launches in 2021 - Eric notes strong organic flows after Facebook’s name change to Meta. VTI market-cap claim: could be the biggest ETF within five years - Eric argues broad-market exposure remains a durable core holding. IJS 2000s return: up 100% in the decade - Cited as a historical example of how deep value can dominate during a regime shift. S&P 500 2000s return: down 8% - Used to contrast with small-cap value’s outperformance in the same period.

Pivotal Quotes: "These are ETFs that we just can't get off our mind." — Athanasios Serafagus: Explaining the rationale behind the annual watchlist, emphasizing thematic conviction over formal recommendations. "It's basically saying that even if companies wanted to buy these credits to pollute, they can't because we're buying up all the supply." — Athanasios Serafagus: Describing the physical carbon ETF and how its structure can affect market supply. "It's like Diet Coke. You get most of the market, a little less volatility." — Eric Balchunas: Explaining the appeal of minimum-volatility ETFs to advisors and older investors.

Implications: Listeners get a map of where ETF innovation and flows may concentrate in 2022: crypto, thematic tech, ESG, China, and defensive hedges. The broader message is that structure, fees, and investor psychology may matter as much as the underlying theme.