Not Another Article about Coronavirus

In the past few weeks, volatility has returned to the markets. The bond market seems spooked by the concept of inflation, the gold and equities markets seem to be de-leveraging. Valuations are contracting in growth sectors and factors seem to be rotating. All that being said, the world looks very different from a year ago, but the uncertainty of the future is still driving the volatility. On March 11th of 2020, the ETF Think Tank published “Another Article about Coronavirus”. The fear, loathing and reality of the pandemic was setting in, but the fire-sale in markets had not yet fully materialized. Today’s uncertainty is based on the unclear return to normalcy, while digesting one last stimulus check (shot in the arm). Transitions are always jarring, perhaps the bond market is simultaneously acknowledging the pain of reopening inflation, while discounting the potential growth of the roaring 2020s.

Do the Same Rules Apply?

In 2020, the markets were rocked early on by the realization that the bulk of our economy would have to shut down in response to the pandemic. After the initial liquidity crash in mid-March, we saw unprecedented stimulus and the hyper-adoption of mega-trends like contactless payments, Gig economy companies, online retail, telemedicine and many other technologies. The recent bond market volatility seems to have caused a valuation contraction and market downturn in these high-flying growth stocks. This deleveraging seems to imply a very simple trade: sell the mega-trends and buy the former zombies (oil and airline stocks).

Not that Simple

Through the end of February, the ETF industry highlighted this admiration for mega-trend investing as indicated by both asset growth and performance. Most of the trends are captured by thematic ETFs and, more precisely, by active thematic ETFs. Based on the ETF Think Tank security master, there are 198 thematic equity ETFs with about $168 billion in assets. About 20% of thematic ETFs are actively managed, but those funds control about 33% of the assets. The 40 active thematic ETFs were up 12.7% on average through February 28th. That said, the performance of this group was severely wounded last week during the initial zombie rotation. The point is that growth is messy. The reopening will be inflationary and underestimated. The over-reaction will be the mirror opposite of the fire-sales from spring 2020. However, the genie is out of the bottle on these mega-trends and the rotation will not be simple. Within the ETF industry, active managers are now tasked with capturing the benefits of these trends in the reopening; we would not discount their potential success.

Bloomberg provided a great illustration of the phenomenon we described above with thematic ETFs.


The information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

Get Think Tanked Distilled with Lyn Alden

Get Think Tanked Distilled with Lyn Alden

Zingers, Questions and Answers

ETF Industry KPI -3/15/2021

ETF Industry KPI -3/15/2021

Week of March 8, 2021 KPI Summary This week, the industry experienced 4 new ETF

You May Also Like