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ETF expert on sectors to avoid amid COVID-19

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ETF Trends CEO Tom Lydon joins Yahoo Finance's Kristin Myers to discuss the ETFs he is watching amid the coronavirus pandemic.

Video Transcript

KRISTIN MYERS: And now, it is time for our ETF report brought to you by Invesco. And today, we are chatting thematic ETFs. For this, we are joined now by Tom Lydon, ETF Trends CEO. Hey, Tom. Thanks for joining us.

TOM LYDON: Hey, Kristin.

KRISTIN MYERS: Thematic ETFs, I had mentioned it in the tease. Work from home is a thematic ETF, which I had not heard about. I know you said in the break that it just came out a couple of weeks ago, so really great timing for them there. Why are they so popular right now? Because in your note, you called them all the rage, and how could it help investors wave their way through this bifurcated market right now?

TOM LYDON: Well, if you've been an ETF fan, just buying the S&P 500 in the last 10 years has served you really well. It would have been tough to beat it. However, in today's environment, there's certain sectors, like you talk about, financials, energy, travel and leisure, are really a challenge in this environment, where there are other sectors that are doing quite well.

And when you talk about this new world we're in, this coronavirus world we're in, many businesses are having to adopt 2/3 of GDP in America is based on the back of small businesses. And all businesses are having to embrace technology, working from home. And when you talk about this work from home ETF WFH by direction just launched a couple of weeks ago, it has four pillars of types of stocks with inside, cloud computing, cyber security, online project management, and remote communications.

And all those stocks really help individual investors who are working from home do a better job. We've all been forced to embrace technology that much more. And I think the big thing that Wall Street's betting on is when this whole thing is over, and hopefully, it's sooner rather than later, we're all going to be better for what we've learned from a technology standpoint. Because we're surely not going back.

KRISTIN MYERS: So we've been talking a lot about mom and pop investors, and they have actually been outperforming some institutional investors lately. There are concerns, however, that they are essentially picking junk stocks, buying anything that's cheap, which is not always good. I mean, would you in your estimation say that perhaps this is a far better strategy and based on the themes really helps you insulate yourself against some of the risks and the volatility that we are clearly seeing in the market over the last couple of days and weeks?

TOM LYDON: Sure, we know individual investors have had some fun betting at home, and some people say it's betting. Some people say it's investing. You know, you see those robinhood accounts going crazy. In this situation, you've got 40 different stocks that are equally weighted. So the whole idea here is you're betting on a theme, but it's diversified. And it's well balanced. And periodically, it's readjusted and rebalanced again.

Sometimes, stocks will get kicked out of the index. Sometimes, new stocks will come in based on what they're proving, based on what the strategy is in this ETF. And work from home is not just one of the thematic ETFs out there. Global X has a cloud computing ETF. What I really like is the principal health care innovation ETF, BTEC, which has Moderna in there.

So there are companies, like Moderna, that are looking at vaccines. They do genetic sequencing. There's cancer research companies, and all these technology companies in this new world that we're in have sped up their timelines. So investors in searching for the right ETF and making sure it's diversified can participate in this speed up technology world that we're in.

KRISTIN MYERS: I want to ask you about something that you wrote about in your note. You said, I wouldn't necessarily go into financial services and banks right now. I'd stick with information technology. You know, we just heard Bob saying that we need to consider a value as an and part of your portfolio, not an either or between growth and value. Why? Why aren't financials looking good to you right now?

TOM LYDON: A few things, and I think Jamie Dimon said it right earlier this week. You know, he said, this thing is going to be a long and drawn out. And the recession that we're seeing is going to continue to evolve. It's not a sprint. It's a marathon in many cases. Now, let's say, the best of all worlds happen. We do get a vaccine, and things do jump back.

I would say, regional banks are in a much better position to participate in a V shape recovery, because most of their income or bottom line is based on loans. The mortgage market is starting to show cracks in a big, big way. And I think as we continue to see this thing through, it's going to be those regional banks that don't have trading and investment banking to kind of bouie their business models that some of the big banks do.

If you want to stay in financial services, XLF, the SPDR Financial Services ETF is pretty well diversified. You're not going to get stuck as much on the loan side. If you feel that we're going to have a quick rebound, regional banks, KRE is definitely something to consider, because it will snap back quickly when we do get a recovery.

KRISTIN MYERS: All right, we'll have to leave that there. Tom Lydon, ETF Trends CEO, thanks so much.

TOM LYDON: Thanks, Kristin.