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Here’s what Bezos’ stepping down from Amazon could mean for ETFs

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Yahoo Finance’s Alexis Christoforous and Cinthia Murphy, Managing Editor of ETF.com, discuss how Bezos’ stepping down from Amazon could impact ETFs.

Video Transcript

ALEXIS CHRISTOFOROUS: Amazon is a big driver of performance across several Exchange Traded Funds. There are at least six ETFs where Amazon represents 20% or more of the entire portfolio. So what did the change at the top of Amazon, or that announcement, at least, mean for those ETFs? Joining me now is Cinthia Murphy. She's managing editor of ETF.com. Cinthia, good to see you. So let's start with the impact you have seen thus far. It doesn't look like the stock has moved in any big way in either direction after this news.

CINTHIA MURPHY: Hi, Alexis. Yeah, absolutely. It's been a very muted reaction. I think the market was expecting a really good earnings report, which they got. And Jeff Bezos's announcement yesterday, I was a little surprised actually how little reaction it got, but maybe that's a positive sign for the company. Maybe people think Amazon is kind of a self-driving vehicle already. It doesn't really matter who's at the top. It just keeps on growing. So there wasn't as much volatility as you might have expected.

But, you know, the lesson here from an ETF perspective is that, you know, like you mentioned, at least six ETFs, Amazon is at least 20% of the portfolio. So you buy an ETF to be broadly diversified across a segment or across a part of the market. And then you have one single stock in that mix that carries 20% to 25% of the whole portfolio, meaning any action in Amazon could really drive the performance of these funds.

Now, luckily, this time around, there wasn't much of a movement in the stock. But you have to know what your portfolio consists of and how much single stock risk is in that mix. If you think of, overall, there's almost 300 ETFs that own Amazon stock-- I was just doing some math before the show today-- that's almost more than $100 billion worth of Amazon market cap today is tied to ETF portfolios. So it's not a negligible amount. It's a huge amount. So any news on Amazon definitely has a direct impact on several ETFs.

ALEXIS CHRISTOFOROUS: All right, always good advice, though, right, just to see inside your ETF, what is it that's there. Because I think a lot of folks think, oh, it's just this basket of stocks, and I'm well diversified. But within that basket, you might not be well diversified, as we see those six ETFs there with 20% or more making up-- of Amazon making up the whole portfolio. So what should investors be looking for when they're out there looking for an ETF? What are sort of some check-- check off some boxes for us in terms of what it is they should be looking for.

CINTHIA MURPHY: Yeah, to use the Amazon as an example, you find Amazon mostly in consumer discretionary ETFs. So if you start with your-- you know, the biggest, which is the Select Sector SPDR, XLY is the ticker. It's a market cap weighted portfolio. It carries the same stocks and the same weighting as there in the S&P 500 within that segment. So if Amazon is almost 25% consumer discretionary, it's going to be that allocation's portfolio. It doesn't make any adjustments for that kind of concentration.

Now if you're not comfortable with that, if you want to go away from just your pure beta market exposure, then you might want to consider like an equal weighted ETF that just tilts more heavily towards some of the smaller names, take some of the weight out of the big ones, so you are more purely diversified across then. You might want something that puts other screens, like different fundamental screens. So the offering is huge. There's no really one solution for every investor. It really has to be how comfortable you are with a single stock risk, with the drivers of the portfolio.

But, again, like you said, you can never assume that you are totally well diversified and safe. Because on a market cap weighted ETF, which most are, you are just going to get some of these concentrations as these companies grow.

ALEXIS CHRISTOFOROUS: Cinthia, what about the other big theme we saw this week? And that's that big run up we saw in silver as, again, investors on these online forums decided to push it up in the hopes of hurting those who were shorting silver. How did that impact ETFs that have a lot of exposure to the metal?

CINTHIA MURPHY: So silver has been an interesting case because, you know, if you really want to invest in silver, you either have to buy a mining company, which is not really a pure exposure to silver, or you've got to go through the futures market, which is not as easily to access as anybody out there with a brokerage account. So ETFs tend to be a very-- a big-time used vehicle for access because you're buying a silver ETF that actually has silver bullion vaulted in London somewhere. But you're buying like you're buying any stock through an exchange, so it's very widely used.

The biggest silver ETF, the ticker SLV from iShares, it's picked up in 2021 alone more than $3.3 billion in net inflows. So even though the short squeeze may have fizzled out, it didn't really work. It was clearly a vehicle of choice for people trying to buy this upward momentum. Because for every ounce of-- every share you buy of that ETF, they have to have that ounce stored away in a vault somewhere. So you have-- it's a direct correlation to the silver price and the ETF share price.

And the amount of volume in these ETFs has been huge this year. They already came from a record last year. And this year is just taking on another life of its own. So it's kind of an easy access point. If you want to play these commodities through your brokerage account, ETFs are the tickers, so it's easy to go.

ALEXIS CHRISTOFOROUS: And what about just overall interest in ETFs? What have the inflows been looking like now as we're here in the second month of the new year?

CINTHIA MURPHY: You know, for January, we are already ahead of the pace we saw in 2020, which was a record pace. So January versus January of last year, we've already beaten that number. A lot of the flows have gone into equity ETFs, especially international equity ETFs. So there's a lot of value hunting in some of these more of the emerging markets and some of the European markets.

But demand is strong. Traders are out there. Long-term investors are out there. And the ETF demand just keeps on rising. We're already at a new record pace for 2021 one month in. So it's looking good.

ALEXIS CHRISTOFOROUS: Off to the races we go. Cinthia Murphy, managing editor of ETF.com, good to see you.

CINTHIA MURPHY: You, too. Thanks.