Exchange-traded fund investors might be able to take advantage of the rebound in reopening trades.
Stocks traded higher Tuesday after the Food and Drug Administration granted Pfizer and BioNTech’s Covid-19 vaccine full approval. Travel, energy and retail stocks were some of the biggest gainers.
This means the market is now at an “inflection point,” J.P. Morgan Asset Management’s Bryon Lake told CNBC’s “ETF Edge” on Monday.
“We do think that there’s an opportunity for investors to continue to participate in the reopening trade through the end of the year,” the firm’s head of Americas ETF client said.
Three key areas are of particular interest to investors as they reposition for the second half of 2021, Lake said: income, short-duration investments and value.
For income, some have used JPMorgan’s Equity Premium Income ETF (JEPI), a product that aims to reduce volatility and boost income by investing in stocks with underappreciated valuations and selling covered calls on the S&P 500, he said. JEPI is up nearly 12% year to date.
“Dispersion between returns is going to be more pronounced given all the uncertainty” around where exactly markets are headed, giving actively managed ETFs such as JEPI a chance at outperformance, Lake said.
Short-duration ETFs, which aim to mitigate risk and lessen investors’ sensitivity to rising interest rates in challenging market environments, are also getting a boost, Lake said, pointing to the JPMorgan Ultra-Short Income ETF (JPST) and its tax-free counterpart, the JPMorgan Ultra-Short Municipal Income ETF (JMST).
“If we potentially get news out of Jackson Hole this week where we could think about thinking about ending the bond purchase programs and potentially even at some point raising short-term rates, I think investors are pulling in their duration using strategies on the ultra-short side,” he said.
Finally, factors such as value and quality are coming back into focus as the reopening trade heats up, Lake said, highlighting JPMorgan’s U.S. Value Factor ETF (JVAL) and U.S. Quality Factor ETF (JQUA). The latter hit a record high Tuesday.
Value stocks are worth investors’ attention as the second half of the year gets underway, CFRA’s Todd Rosenbluth said in the same interview.
“We think value is going to return to favor,” said Rosenbluth, his firm’s senior director of ETF and mutual fund research.
“We think we’re going to see a rotation again back towards value-oriented ETFs, whether they’re the broad market ones like the iShares Russell 1000 Value ETF, or the more targeted and focused ones” such as Invesco’s S&P 500 Pure Value ETF (RPV) or iShares Focused Value Factor ETF (FOVL), he said.
“Those really outperformed because of the strength of financials and some of the more value-oriented and cyclical sectors,” Rosenbluth said. “We think that’s going to happen as we make our way into the return to school and a return to work for many people.”
