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ETF expert: ‘We’re seeing a lot of money go into gold’

ETF Think Thank Director of Research Cinthia Murphy joins Yahoo Finance Live to discuss the latest trends in the ETF space and how many investors are flocking towards gold ETFs.

Video Transcript

BRAD SMITH: But since we got huge earnings yesterday from Netflix, the Netflix post-earnings share price plunge has exchange-traded funds pegged to communication services components feeling the pressure today, under pressure. Cinthia Murphy, ETF Think Tank director of research joins us now for today's "ETF Report" brought to you by Invesco QQQ. Cinthia, great to have you here with us today. What do investors need to know about ETF weighting, when one component experiences extreme swings either to the upside or downside as this can often be the case during earnings season?

CINTHIA MURPHY: Hi, Brad. That's a great question because as you know, an ETF is everything about what's in that basket. In the case of Netflix specifically, it actually wasn't as bad because even though you have more than 240 different ETFs accessing different parts of the market that invest in Netflix, none of them had more than a 5% weighting to that stock. So that means that you know, in the whole scheme of things, Netflix at most represented 5% in some of these ETFs. So a 20% decline in price is significant but is not going to drag down like we tend to see in the case of Amazon, for example, which in some portfolios is a quarter of the portfolio is Amazon. So any price movement there will really dramatically impact the performance.

That is one of the reasons why in some of these really popular stocks investors tend to like equal-weighted portfolios because then the representation Netflix has on a portfolio will be the same as much, much, much smaller cap stocks. So they all kind of carry the same weight and they carry the same impact in performance in the portfolio. So it's always good to know how your portfolio is weighted across different stocks.

BRAD SMITH: Certainly. So with the first quarter in the books, what type of fund flow activity have we been seeing so far this year into ETFs?

CINTHIA MURPHY: You know, it started off really strong all things considered given that the market has not been particularly blockbuster. What has been interesting to watch is really the month of April so far. There has been a bit of a switch, in March we saw really strong flows, a lot of demand for US equity ETFs, and now in April, it kind of dried up. We were seeing demand go elsewhere. There seems to be a little bit of a concern about the word recession is popping up more, inflation is not subsiding, there's a bit of concern about that economic growth. So we're seeing flows shift a little more.

We're seeing a lot of money go into gold ETFs, for example, which is one a precious metal, two, a commodity, a unknown hedge for inflation, and a great diversifier from your equity risk. So we're seeing a lot of money go into that. We're seeing money look for sources of income. So if equities are really going to plateau or if they're at risk, people are looking for ways to beef up that income in the portfolio. So dividend-paying strategies are big at the moment. So it's been a little bit of a shift, a little bit of de-risking in portfolios, a little bit of money out of US equities. But we'll see if that holds, April is still young and the trend has just started.

BRAD SMITH: Yeah, Cinthia, I've got to be quick here but we also had a new ETF list today thematically timed with 4/20, and the ticker is W-E-E-D, W-E-E-D, that spells WEED to everybody out there. So how have thematic ETFs fared in the cannabis industry?

CINTHIA MURPHY: Yeah, welcome WEED. It's about the 12th or 11th weed ETF we got in the market. It's been a tough, tough go for them. Thematic ETFs in general are out of favor, a lot of these are really growthy names which have been out of favor as you know.

And there hasn't been a lot of movement from a regulatory perspective to really just open access to cannabis on a federal level. Until that happens, these ETFs are kind of they're there, they're ready, investors have actually been putting money into them even though it's really a slow growth story at this moment. So if we see some regulation change at the federal level, we could see a big pop in this pace. The ETFs are there, they're lined up and investors are putting their money there but the performance has not been there yet.

BRAD SMITH: Yeah, not yet. Down on the day thus far. Cinthia Murphy, ETF Think Tank director of research joining us here today. We appreciate the time and the insight.