ETF Edge - The Cyclical Rally, Gold ETFs & The Space Race

Episode Date: November 23, 2020

Guest-host Eric Chemi spoke with Dave Nadig, CIO and Director of Research at ETF Trends and ETF Database, Will Rhind, Founder and CEO of GraniteShares and Andrew Chanin, CEO of ProcureAM. They discussed whether a "covid winter" could derail the rally in cyclicals, how to play gold ETFs and whether it's time to buy on the dip. Plus, the great space race and what a Biden presidency might mean for that sector. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to ETF Edge, the podcast. I'm Eric Cheney filling in for Bob Pisani. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. Today on the show, we'll be talking about whether a COVID winter could derail the rally in cyclicals, how to play gold ETFs, and whether it's time to buy the dip. Plus, the great space race and what a Biden presidency might mean for that sector. Here's my conversation with Dave Nadegh, CIO and Director of Research at ETF Trends and ETF Database. Will Rine, founder and CEO of Granite Shares, and Andrew Chanon, CEO of Procure AM.

So Dave, with the markets caught up in this tug of war between hopes for a spring reopening and fears of a dark, dreary COVID winter, is the rotation back into cyclicals maybe happening a little too early? Yeah, I think it's happening quite frankly very, very much too fast. You know, I think there's very little chance the economy is going to be real gangbusters over the next six months. There's really no chance for any significant stimulus, really, frankly, probably before February. And whether that stimulus is enough to do anything but maybe keep the consumer economy alive, I think really remains to be seen. And I don't see a lot of real rosy things on the horizon until we have that broad distribution of a vaccine. I think that's

much further out than people are really counting on. I think we're talking about next summer, not just sort of a magical air drop of vaccine in January that somehow solves all these problems. So I think the right thing for investors to do is think about what's been working during the pandemic, whether that's something like the direction work from home, ETF, WF, WF, which obviously has gotten a lot of play, but it's been hugely volatile, right? As people see this news, they somehow think that because we get a vaccine announcement, all of a sudden we're not going to do Zoom calls anymore. That's not the way this works. I think those folks that have been winning in the COVID economy, if you will, are going to continue to win going forward.

Will, that's actually something I wanted to mention to you. It's just because we have a vaccine, like we just heard, just because we have it, it doesn't mean COVID goes away. It doesn't mean everyone's using the vaccine, even if they get the vaccine, even if COVID goes away. It doesn't mean people are going back into the office. It doesn't mean they're moving back to the big cities that they just left. So how do you play this situation when you're really trying to play Nostradamus on a lot of factors about how people are going to behave? Yeah, no, it's a good question. I mean, I think the simple thing is we're not out of the woods yet for all the reasons that you've just bought up. And therefore, I think one thing that

we can be assured of is that there will be, have to be more stimulus. you know, at the government level, both the government and, you know, the Federal Reserve as well. And the upshot of all of this will be there'll be more volatility in the market. So for me, you know, I think gold is still a good play in this particular market environment, you know, as people look for a hedge to the market volatility that we're seeing. Dave, I'll send it back to you. Like we know back. Go ahead, Dave. I was just going to say, I think the opportunity here is not to necessarily try to pick the

next winner. I think we realize that's probably a bit of a fool's errand. But if you're looking to sort of think about your equity allocations over the next six months, I'd be looking for signs of weakness. And that doesn't mean going and buying the most beleaguered, you know, the most beleaguered ETF and the most beleaguered sector. But if there are things like the work from home ETF or, say, online consumer ETFs, technology ETFs, that we really have some pretty fundamental beliefs about why they're working and why they'll continue to work, I'd look for weakness there. I'd be very reluctant for anybody to be chasing, say, energy, because energy all of a sudden seems to be having a good day. I think the fundamentals of the economy are still very, very shaky.

I think most of the good news is priced in. And I think a lot of the bad news is going to be pretty bad, and it's going to be a good quarter or two before we get some of that shaken out of the system. So the market's really good at pricing in hope. I don't think the market's been particularly good at pricing in fear and reality. Will, I'll send it back to you. So just exactly what Dave was saying was something I wanted to mention, we already know about the stimulus and how maybe that's coming. We know about the vaccine.

We know it's been a winner. We know it's been a loser. And there is a lot of hope price. And we're looking at all-time highs right here. So how does somebody, how do you tell a trader, an investor, okay, chase this, but don't chase that because we already have all this news baked in and maybe chasing weakness. there's a reason why that stuff is week. Maybe it's never coming back. Yeah, that's right. And I think, you know, also with markets the way that they are,

I do think that people should be thinking about the more defensive elements of the portfolio because, you know, risk is running wild at the moment with all of the stimulus, with all the good news that we're talking about. But yet there's still a lot of risks out there. So for me, you know, that's gold in the portfolio. You know, what we also have, you know, Eric is an income crisis in this country that, you know, when before COVID, you know, getting 5% income in a portfolio was probably somewhat optimistic, but that 5% has now become 3% or lower in this particular pandemic scenario. So now you've got a situation where people are looking for income like they never have before, and there are very, very few options for them to

credibly generate a high level of income in this particular environment. You're right. I mean, income is impossible right now. It's almost basically zero. I know people, they're chasing those dividend ETFs, right? They're chasing stuff like that. And we know, yeah, you can get a high dividend because that stock is going to zero. So good luck actually getting paid out on something like that. You really have to look past the traditional bond ladders and dividend stocks. That's not, if you really need to generate income right now, you have to look for alternative sources. Will has a product in his lineup that does this that looks at things like business development, Corps and MLPs and REITs and other slightly more non-traditional ways of generating income,

things like Preferreds. We've seen a lot of activity in things like Preferreds. There have also been a lot of growth in alternative strategies that use options to manage that downside risk, whether the so-called buffered ETFs or funds like the nationwide retirement income ETF, Newsy, which sort of squishes the returns of the NASDAQ 100 and generates income out of that. If you need income, You've got to look past those traditional ways of thinking about it. If you want to go very, very traditional, right? You want to go way back into time. Let's talk thousands of years ago, gold.

Gold is still around. People are still looking at this stuff. Gold prices have come under pressure ever since that positive vaccine announcement two weeks ago. But a lot of experts believe the precious metal still has plenty of time to shine. City Group actually just came out with a bullish note forecasting an average price of $2,500 an ounce next. year. Will, where do you see gold ETFs headed going into the new year? Well, I think it's higher, Eric, for a number of good reasons. You know, some we just discussed, but the stimulus right at the top of my list would be, you know, probably the most obvious one

and the one that's certainly driven gold prices for the majority of this year in 2020. But on the back of stimulus, you've got to talk about, you know, weaker dollar platform, you know, going forward, also inflation expectations picking up, you know, as a result of the two things we just mentioned, probably most positive at least for a number of years, and then obviously falling real yields and the continuing volatility in the market. So for me, the conditions that drove gold to an all-time high this year are very much still in place. I think it's just natural that once you get to an all-time high in an asset class, there's some consolidation afterwards, and that's what we're seeing right now in terms of the price.

But the fundamental conditions are still here, and I believe that they will. be here for the next 12 to 15 months minimum as well. Yeah, and if we dig deeper into the gold, sorry, if we dig deeper into the gold story, the fundamentals of the gold market are looking particularly bullish right now, too. You know, it's obvious to talk about things like the potential for inflation or the declining dollar. Those are big macro concerns that are bullish for gold. But we've also got very constrained supply.

Remember, the gold mining industry is an industry like any others, and it's been hit by just like every other industry, all the way from the mine to distribution, to manufacture, all of that's been constrained. None of that seems to be opening up much. So the supply remains very constrained. And at the same time, demand has really never been higher. Investment demand, particularly ETF investment demand for gold, is at all-time highs? I don't see that changing. Whether it's just investors realizing a 5% allocation to gold is a nice way to provide some counter-correlation in the portfolio, or whether it's folks just speculating. that the price is going up over the next six months, that demand's going to be there.

So you've got these big macro drivers, and at the same time, the fundamental microeconomic structure of the gold market is bullish as well. Do you put much stock, Dave, into this $2,500 number? We're at $1,800 right now. I mean, when you hear stuff like that, does that make you think twice for a second, or you just ignore that kind of stuff? Honestly, I think, you know, these are sort of broken clock kind of predictions. Everybody's going to come out with their prediction for gold or Bitcoin or the S&P or the Dow.

I tend not to pay a lot of attention to these sort of round number predictions. I tend to think much more about where the drivers, and the drivers right now do seem fairly bullish for gold. I'm not a big gold bug, right? I'm the first one to point out that gold is non-producing asset. It's a psychological commodity, meaning it's only worth what somebody else will pay for it. But that being said, it's hard to argue with thousands of years of history of folks looking to gold is a store of value in times of crisis.

And I don't know what we're in if it's not a time of crisis. That's a good point. I mean, obviously, there's no income coming out of gold like we talked just a minute ago. I actually want to circle back to that, Will, because obviously this has been very challenging chasing yield recently. So you guys actually offer a high yield, a high income ETF product. Talk about that, well. Yeah, that's right.

So our income strategy, and again, to Dave's point earlier, I mean, the whole point for us is you've got to be thinking. in terms of a different way to generate income than traditional sources. Traditional sources.