IndexIQ Top ETF Trends and Insights – Mid-Year Update

by: , Chief Investment Officer and Managing Director | IndexIQ

As the first half of 2019 has proven to be at times surprising and unpredictable, we reflect on those themes that have emerged to the forefront and how they will shape the remainder of the year:

Alternatives: Mergers and Acquisitions to Remain Robust

Though overall deal volume was down to start the year, some of the major mergers announced during the first half of the year included Chevron’s move to acquire Anadarko Petroleum, Bristol-Myers Squibb moving to acquire Celgene; and BB&T acquiring SunTrust Banks. Looking out over a longer time frame, we expect mergers and acquisitions activity to continue to be robust.

Equities & ETFs: SEC Paves the Way for Innovation and Expansion

After years of relative status quo for the rules governing the ETF industry, 2019 has brought a wave of both real and potential change. First, the SEC made clear their intention to finalize the long-awaited “ETF Rule” in 2019. The rule offers a number of interesting provisions geared towards ‘evening the playing field’ for firms looking to get into the ETF space or expand their product lineup.

The SEC also gave its stamp of approval to an entirely new structure that allows for the construction of non-transparent active ETFs. We anticipate this development could bring a new wave of ETF industry innovation, particularly on the active equity side, where many managers who may have been hesitant to package their strategies in an ETF wrapper will now be more likely to embrace this approach.

Fixed Income: Fears of an Economic Slowdown Fuel All-Time High ETF Flows

Flows into U.S. fixed income ETFs have been very strong to start 2019, reaching all-time high inflows of nearly $25 billion as of June 30, according to etf.com, as investors try to navigate fears of an economic slowdown and a Fed that is all but under seige by the current administration. Amidst all this, the search for yield remains imperative but the focus on risk has grown concurrently.

We are expecting flows to continue as the yield curve remains inverted and as rates are likely to remain tight for the second half of the year. In an effort to avoid taking too much duration risk in the current environment, investors have already begun making a pivot to ultrashort duration approaches, with well over $7 billion flowing into ultrashort bond ETFs as of June 30, according to Morningstar, a trend we expect to accelerate in the second half of the year.

Click here for our outlook at the start of the year.

Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.

“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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Salvatore J. Bruno

Chief Investment Officer and Managing Director | IndexIQ

Sal is Chief Investment Officer at IndexIQ, where his primary responsibility includes developing and maintaining the firm’s investment strategies. Sal joined IndexIQ in 2007 from Deutsche Asset Management (DeAM) where he held a number of senior positions

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