Cinthia Murphy, VettaFi Investment Strategist, joins Brad Smith to discuss how to play the exchange-traded fund (ETF) space as part of the ETF report on Wealth!
Murphy tells Yahoo Finance, “Gold (GC=F) has made more than 30 new record highs so far this year. It keeps going up up up. And now that the Fed has cut rates, it’s almost like the perfect storm for gold prices. Everyone you talk to on the Street, every market expert, macroeconomist, everyone has a bullish case for gold at the moment. You know gold is the prices tend to be inversely correlated to rates. So lower rates [are] good for gold prices.”
She explains, “Even though the rates came [with] this idea that ‘soft landing, inflation is contained,’ there is a concern that it could actually be to stem economic weakness. It could be to try to manage [the] concern that inflation isn’t fully over. Gold is a hedge against inflation. It’s a safe haven. So all of the catalysts for gold performance seem to be in place. And the market is very bullish gold at the moment.”
Looking beyond gold, Murphy says commodities can be considered “a broad diversifier” for investors’ portfolios. “Part of that diversification story that manages your risk exposure this time of year…But in general, the commodities and the metals have been great diversifiers for portfolios this year.”
As the Fed cuts rates, fixed-income assets have come into focus for investors. “Fixed income has been the asset class everyone is really interested in, and it’s been a shifting story. So, the change in the rate policy really opened the opportunity for the duration play. So people are moving that cash-like exposure. We’ve seen all this money in the last couple of years go into that short end of the yield curve. It’s that, you know, almost like cash type of exposure. Your money market funds, they’re capturing about 5%, you know, a lot of yield to have your money sitting in a cash-like position. But now that rates are going down, going longer duration is starting to make sense.”
As central banks around the world examine their rate policies, investors may want to adjust their portfolios. Murphy says “What’s been interesting to see in the ETF space is that domestically there’s a lot of exposures folks are using, a lot of folks are using aggregate type of bond portfolios” like the iShares Core US Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market Index Fund ETF (BND.MX).
“But on the international space, a lot of the money is going into the actively managed strategies…because there’s a sense that to go internationally, the story isn’t as clear cut. There’s different moving parts, different countries doing different things, different central banks moving in different ways. So an active manager can really add value here, choosing which bonds to go, how far in duration, and how much credit quality to play with. So active management has really stood out as an interesting play here to go international.”
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Naomi Buchanan.
