It appears that sector-specific ETFs are gaining popularity as a way to cushion the fallout from the banking turmoil.
According to VettaFi’s Todd Rosenbluth, the trend applies to ETFs that own only a few large companies in particular sectors.
“[They’re] is going to be a complement to a broader S&P 500 strategy,” the firm’s head of research told CNBC’s “ETF Edge” on Monday. “We’re seeing this year that active management and actively managed ETFs in particular have been relatively popular as an addition to an existing core strategy. »
Rosenbluth says the narrow focus of large-cap sector ETFs can increase potential gains.
“[In] the same way you could do individual stocks of favorite names…now you get the benefits of five or six of those companies to augment that,” he added.
When asked if these sector ETFs were trying to reintroduce FAANG stocks – which refers to the five popular tech companies Meta, formerly Facebook, (META); Amazon (AMZN); Apple (AAPL); Netflix (NFLX); And Alphabet (GOOG) — Rosenbluth explained that it’s difficult to build ETFs with exposure only to large-cap stocks because companies can be categorized into different sectors.
“You can’t get that right now easily with an ETF [holding] just those five or six stocks,” he said. “If you really wanted to make a call on those five or six companies, there’s an ETF coming soon.”
Yet last week on “ETF Edge”, John Davi of Astoria Advisors suggested that the banking upheavals could expose the problems lurking in ETFs tied to specific sectors.
“You need to be aware of your risk,” said Davi, who runs ETF AXS Astoria Inflation Sensitive.
For others, the banking turmoil creates opportunities.
“Not just a standalone opportunity”
Roundhill Investments, an ETF issuer, plans to launch three large-cap sector ETFs: Big Tech (BIGT), Big Airlines (BIGA) and Big Defense (BIGD).
These “BIG ETFs” will join its Big Bank ETF (BIGB), which was launched last Tuesday. Its median market capitalization is $145.5 billion, according to the company’s website.
Dave Mazza, the company’s chief strategy officer, sees similar growth opportunities beyond the financial sector.
“People are bidding on some of the biggest names, especially in banking, because they could be the beneficiaries of the tougher regulations to come,” he said. “The intention here is that [the BIGB] is not just a standalone opportunity, but the idea [of] to be a leader and a potential sweep down the line.”
The Roundhill Big Bank ETF is down almost 5% since its launch based on Friday’s close.