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Energy & Natural Gas ETFs in focus amid hurricane Ida, West Coast fires

Reggie Browne, Principal at GTS, joins Yahoo Finance the discuss ETFs investors should keep an eye on amid the recent natural disasters in the United States.

Video Transcript


ALEXIS CHRISTOFOROUS: Time now for our ETF Report brought to you by Invesco QQQ. And for that, I want to welcome in Reggie Browne, principal at GTS. So Reggie, good to see you. I know that we're focusing here on energy, which has really been thrust into the spotlight in the wake of Hurricane Ida. And of course, the drought that much of our country in the West is going through right now. What have you been seeing in terms of demand from investors for ETFs that may be impacted by those two events?

REGGIE BROWNE: Well, I appreciate you having me on today. You know, it's amazing when you saw the after-effects of Hurricane Ida. The energy sector was already on a tear compared to the S&P this year but we're seeing more interest in that sector, and particularly the Energy Select ETF XLE, the First Trust Natural Gas ETFs, deals with that whole sector with Ida disrupting the supply chain will see some gaps in the marketplace and thus, may see higher prices. A lot of it's being driven by a couple of stocks, Chevron, Phillips 66, Pioneer, and Devon Energy. So I think that there's upside based on what we're seeing flows and then some of the viewpoints of some investors going into this market.

ALEXIS CHRISTOFOROUS: What about some of the-- if you dig down deeper into energy and into oil, are you seeing demand for say natural gas versus unconventional oil and gas? Where are you seeing most interest right now?

REGGIE BROWNE: Well, we're definitely seeing some nat gas but I think it's really about supply. And I think you know, although you're seeing all these ESG pressures, you know, I think it's just plain old gasoline and oil to meet the demand for transportation. I think that's where we're seeing the bulk of the activity.

ALEXIS CHRISTOFOROUS: And I want to get a little bit to what's happening in the West now and the drought that so many are experiencing there. How is that playing out in the ETF market and be specific if you can because our viewers love when they can actually see specific ETFs that our folks are talking about.

REGGIE BROWNE: Yeah, absolutely. I mean, if you look at, for example, well, first of all, you know, I think clean water and water supply is underrepresented in the news and what's happening in the West. I mean, every day there's an article around the supply of water in California and Arizona and how some of the supplies are starting to dwindle and there's rationing going on.

And so for example, the Clean Water ETFs, one by Invesco, I think the ticker is PHO, for example, is one area that investors are starting to pile into. And then Global X has launched a new ETF, the ticker is AQWA, and that's around clean water. So I think that as we march into new investor mindset and sentiments and you start focusing on just the drought that's happening in the Western part of the United States, water and water supplies and clean water will be more of a theme. And we're starting to see an uptick in that sector and particularly by some investors.

ALEXIS CHRISTOFOROUS: And speaking of themes, I know that ESG has been a hot one. Are you seeing that demand for those kinds of ETFs continues to be very strong?

REGGIE BROWNE: Look, I think that investors, large and large and small, love investing in their belief systems and then particularly, their value system to produce positive outcomes. Many will be right if their wallets point in the same direction but often they don't. I mean, many investors who are investing ESG, their gas engine cars still wait for them in the parking lot but I think while electric vehicles will grow, I think we're still 15 years away from critical mass, it's early stages.

But ESG I think is important to a lot of investors and we're seeing more ETFs being launched with the ESG theme and then ESG be more thematic around just how investors are thinking about it. But really the new ESG ETFs is really more about momentum plays. And they're grabbing a lot of market share because of it.

ALEXIS CHRISTOFOROUS: I want to get your thoughts on this new Cathie Wood's ARK Invest ETF, I know they filed for a transparency-themed ETF this week. And the fund is actually going to exclude some sectors, including banking, gambling, alcohol, tobacco, some of the vices I guess. If the SEC approves the fund, it would be the second ETF launched by ARK Invest this year alone. What are your thoughts on that new transparency ETF and is the demand going to be there given the track record that Cathie Wood's ARK Innovation Fund has had recently?

REGGIE BROWNE: Well, I just think you're starting to see a natural growth in Cathie's business. I know her well. It's amazing of just her success around just her visionary around SpaceX and Tesla. But as she grows her business and now she's adopting a third-party index to create an ETF on, I think you're seeing natural growth to her business.

Now, whether transparency around regulation, lawsuits, compensation, is a true measure around ESG principles, we'll wait to see that. And then when you start eliminating banking and chemicals, and other types of sectors. You know this is their view, will it return positive outcomes and positive returns for investors? We'll wait to see that but the ETF itself will be liquid because underlying equities inside of it's very liquid but will it perform? I don't know.

But I think that from the perspective of how Cathie is choosing to grow her business and then in addition to her transparent active ETFs that she has in the marketplace, now growing through indexing, you know, it's a novel and it's something that is realistic for her to do. But I'm not quite sure about the transparency as a ESG metric. I think investors still want to stick to their value systems and eliminate fossil fuels, eliminate guns, or eliminate other sin stocks that are against their belief systems long-term.

ALEXIS CHRISTOFOROUS: All right, Reggie Browne, principal at GTS thanks as always for talking a little ETFs with us. We appreciate it.