ETF Edge - Commodities Corner: China Reopening & D.C. Debt Drama 5/22/23

Episode Date: May 22, 2023

CNBC’s Seema Mody spoke with Brendan Ahern, CIO of Kraneshares and Will Rhind, Founder and CEO of GraniteShares – as well as Todd Rosenbluth, Head of Research at VettaFi. They shed some light onto how investors are feeling about the China reopening story. They also dove deep into the mixed cross-currents for commodities – with copper faltering but gold prices higher in the face of debt ceiling drama in Washington.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQQ, supporting the innovators changing the world. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange traded funds, you are in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Simamodi and for Bob Bassani, and today on the show will shed some light onto how investors are feeling about the China reopening story. Plus, the mixed cross currents for commodities,

the copper faltering, but gold prices higher in the and face of the debt ceiling drama in D.C. How's an ETF investor to make sense of it all? We will ask three experts in the business. Here's my conversation with Brendan Ahern, CIO of Crane Shares, Will Rind, founder and CEO of Granite Shares, and Todd Rosenbluck,

head of research and VETify. Brendan, you've been watching these developments. in so closely, what are you seeing right now? We're seeing an incremental rebound from the Chinese consumers, SEMA. It's not like turning on a light switch that consumer confidence needs to grow after this zero COVID world. So we're expecting that Q1 will be better than Q4, Q2 better than Q1, and so on and so forth, that this slow incremental rebound as consumer confidence builds should help the consumer

kind of come back. And we're actually hearing that for many of the companies that you mentioned in in the management calls. They're speaking to how Q2 already is outpacing Q1, which outpaced Q4 of last year. Let me bring Todd into the conversation. A handful of emerging market ETFs, Todd, have seen strong inflows lately. But do you get the sense that some investors are starting to siphon out of non-China EMBath from an overall emerging market allocation? Well, yeah, we're seeing strong interest in emerging markets. Many advisors are telling us at VETI that they're looking to reduce their home bias and exposure to emerging market ETFs. So the Vanguard puts the emerging market ETF, VWO, the I shares MCI emerging markets ETF, EEM.

That's seen some relatively strong growth in net inflows this year. And as Brandon referred to, China is still the largest market, about a third of the overall asset. assets are tied to it. One thing that we're seeing that's interesting is crane chairs recently launched a income-oriented version of their K-Web ETF. The ticker on that is K-L-I-P, Clip. And we're seeing strong interest in that. People are looking to reduce the volatility in their China dedicated exposure, and Clip is a great way of doing that. Okay, let's talk about crude, Will. Because prices have ebbed and flowed on these China headlines. What are you seeing in oil right now? It's pretty lackluster, to be honest at the moment, because the market is really suffering

from this malaise around the debt ceiling. And I think until we get clarity around what's happening with that, it's going to be difficult to see an upside move in oil, or most commodities, to be honest with you. But getting past that, you know, crude, I think the story is really largely based around the forecast for China for the rest of the year. We saw some good numbers coming out of the world. the country in March, but I think as he's heard from Brendan, that, you know, this, coming from such a low base, the recovery there is not going to be a linear recovery. And, you know, we saw

good numbers for March, but the Chinese consumer used to be, or the traveling class used to be the most lucrative in the world, you know, post-pre-pandemic in 2019, you know, that hasn't rebounded. Domestic travel rebounding, which is, you know, using or consuming a lot of oil, but we've yet to see that from the international sector. And I think, it will come, but maybe just not yet. That's a great point. Along that vein, metals and mining stocks have also lost their luster on deflationary pressures in China as consumer prices have slowed. We've seen base metal prices decline in the last few weeks. Copper prices down 12% from their January high. Gold has ticked up

as the debt ceiling drama heats up here in the U.S. But will, I mean, you run several big commodity ETFs like Granite shares gold trust. That's ticker B-A-R. Give us your take on precious metals right now? Well, really, the story is all about gold. And it has been this year because gold is the only major metal to remain in the green, firmly green for this year. And so we saw prices flirt with an all-time high. And that's largely too with the debt ceiling, because those will remember, you know, back

in 2011, when we had a previous issue with the debt ceiling and ultimately ended in the downgrade of the U.S. sovereign debt for the first time. We saw gold rocket to then a high. So people looking for a hedge against that kind of event in this particular market. We know that we've seen the yields obviously come down the short term, sorry, appreciate in short term treasuries. But I think gold is really serving its purpose at the moment as a way for people to park money in a non-correlated asset as they worry about what might happen.

Certainly hedge themselves against the probability of something falling out of bed with the debt ceiling. You know, Todd, it's interesting because commodity ETAs, are still a popular trade despite this sort of uncertain global backdrop. So where are you seeing the most inflows right now? So we at VETI have an explorer tool, which looks at where the engagement that advisors are strongest. And we're seeing actually strong demand for commodity ETS.

You actually saw a pop in the last couple of weeks towards commodity ETS. We'll talk about precious metals and ETS like GLD from State Street and GLDM, which is a lower cost version of the GLD product, have seen relatively strong inflows this year. We're also finding advisors are interested in active management within the commodities space. So Will has a product that's there that offers that Newberger-Berman has an ETF, the Newberger-Berman Commodity Strategy, ETF, NBCM,

is another way of getting a diversified exposure to commodities. So gold may not continue to be in favor forever in 2023. And so investors might want the benefits of active management to rotate. And NBCM is one of those examples, ETFs. Interesting idea. Brendan, on another note, the G7 summit wrapping up this weekend, what's the investor takeaway? Been positive, Seema, that one of the major headwinds for investors in the China space has been the U.S.-China political relationship. And President Biden noted that he expects the U.S.-China relationship,

to improve very soon. I mean, just this week, China's Ministry of Commerce will actually visit Washington, D.C., meet with U.S. Secretary of Commerce, Gina Romando. This is the first significant meeting on U.S. soil from a Chinese diplomat in probably about five years. So you think about, you know, just as relationships, you had COVID babies because of being stuck at home. You also had COVID divorces. and I think the U.S.-China relationship really did suffer by the lack of travel from senior diplomats between the two countries. And we're taking a small step this week to improving that relationship, which hopefully just improves further.

Okay. Well, lastly, inside ETS is hosting its annual conference in Hollywood, Florida this week. The conference just kicking off yesterday, and Brennan Ehren is there in the midst of all the action. Brendan, any key takeaways yet? Well, it's been a great event thus far. I mean, you know, we're stuck inside during some great beautiful Florida weather, but outside of that, it's been a great opportunity to connect with a whole element of the ETF industry as well as a lot of end users, a lot of financial advisors, registered investment advisors here. So, so thus far, it's been a great event. Todd, I would love for you to weigh in here. Does what Brandon mentioned resonate sort of with

what advisors you've been speaking with are saying as well? Yeah, so advisors are increasingly engaging with us and partners with fixed income ETFs. We've seen the strong inflows. I mentioned the VETI Explorer tool earlier. We've seen corporate bond ETFs in particular stand out. And I think advisors are increasingly looking for income that isn't just a safe haven from treasuries. So we think that's going to be a popular topic down at the broader conference.

And advisors continue to look for alternatives within the fixed tax. income ETF lineup. That's it for today. I'm Simamodi, filling in for Bopasani. Thank you for listening and make sure you tune in next week. In the meantime, you can tweet us your questions or topic ideas at ETF Edge CNBC. InvescoQQQ believes new innovations create new opportunities. Become an agent of innovation. Invesco QQQQ, Invesco Distributors, Inc.