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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.”
Turning now to ways to play the market as the Fed cuts rates. Gold still hovering near its record high as weak consumer confidence data bolsters the case for bigger rate cuts this year. And bonds, seeing more inflows off of the back of last week's fed rate cuts. 35% of all ETF net asset inflows this month are into US fixed income ETFs, according to Vetify. To discuss how to play both assets, we've got Cynthia Murphy, who's the Vetify Investment Strategist as part of this recent ETF report. Brought to you by Invesco QQQ. So, let's start with gold. We got to begin there. I mean, we've seen this record touching run and got to wonder if there's still more fuel in the tank there.
Hi Brad, it's been an amazing year for gold. I was reading some stats yesterday, just looking at some numbers, and I think gold has made more than 30 new record highs so far this year. It's, 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 is, has a bullish case for gold at the moment. You know, gold is, the prices tend to be inverse correlated to rates. So lower rates, good for gold prices. Even though the rates came in this idea that, you know, 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 as a concern that inflation isn't fully over. Gold is a hedge against inflation. Uh, it's a safe haven. So all of the catalyst for gold performance seem to be in place. And the market is very bullish gold at the moment.
Is what's true for gold ETFs also the same for some other commodity ETFs, or is there kind of a bifurcation or a differing in how investors are playing these?
You know, for from the metals group, gold is the best performing metal, precious metal today. Uh, the other metals, they tend to be more industrial use, so there's a cyclicality associated with them. And when you look at commodities as a broad diversifier, commodities have been a big part of portfolios this year, part of that diversification story that manager risk exposure. Uh, this time of year, specifically, you tend to have a little bit of a low in the US. The agricultural commodities are entering harvest season, which means abundant supply, pressure on prices. So it's a it's a tricky moment for agricultural commodities, but in general, the commodities and the metals have been great diversifiers for portfolios this year.
Can you tell us if this might be the time to play fixed income ETFs ahead of more potential rate cuts?
So fixed income has been the the asset class everyone is is really interested in. Uh, and it's been a shifting story. So the change in the rate policy really opened the opportunity on the duration play. So people are moving that, you know, 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 they're capturing 15%. Uh, you know, a lot of yield to have your money sit in in a cash-like position. But now the rates are going down, going longer duration is starting to make sense. So we're seeing money go into things like, you know, the 7 to 10 year, 20-year treasury space. We're seeing money go away from short and into that longer duration exposures. It's it's that lower rate makes the opportunity really interesting on the duration side of the bonds.
And so with that in mind, is it US specific, or are there other international ways to play the bond market and fixed income, especially given where we're seeing some of the more cutting cycles start to at least initiate in thought elsewhere around the world as well?
Yeah, it's it's been there's an interesting resonance globally, this moment of tinkering with rates. What's been interesting to see in the ETF space is that domestically, uh, there's a lot of exposures folks are using. A lot of folks are using aggregate type of bond portfolios, like your AGGs and BNDs. But on the international space, a lot of the money is going into the actively managed strategy. So, you know, Capital Group, Fidelity, different Franklin Templeton, different product providers, because, uh, 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, how much credit quality to play with. So active management has really stood out as an interesting play here to go international.
Really interesting. Great insights and perspective, as always. Cynthia Murphy, who is the Vetify Investment Strategist, joining us here today on Yahoo Finance. Cynthia, great to see you.
Great to see you, Brad. Thanks.
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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.”