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ETF opportunities amid a ‘hot’ housing market

Gargi Chaudhuri, Head of iShares Investment Strategy Americas at BlackRock, joins Yahoo Finance to discuss the ETFs to watch in the coming months and amid the hot housing market.

Video transcript

ALEXIS CHRISTOFOROUS: Time now for our ETF Report, brought to you by Invesco QQQ. Joining us is Gargi Chaudhuri, Head of iShares Investment Strategy Americas at BlackRock. Gargi, good to see you. You know, earlier, we had a market strategist on, and we were talking about this trend of retail investors continually buying on the dip, even though we've got rising inflation and these supply chain issues-- that fear of missing out still very much at play. So I'm wondering where you are seeing money flow into ETFs over the past couple of weeks.

GARGI CHAUDHURI: Sure thing. Hi. It's very good to be here. Thank you for having me. And you're right-- what we saw so far in October is that the market has rebounded pretty significantly, especially given September's performance in the equity markets. And, yes, that's also been followed by flows into ETFs.

I would say what we are focusing on more recently is, especially as Q4 takes hold, more of that reflationary theme play out in the market. So a lot of flows into financials ETFs-- about $2.6 billion worth of flows into financial ETFs-- a lot of flows into Treasury inflation protected securities with the TIP ETF, which has had flows throughout the year, but certainly picking up in the fourth quarter as well, and investors also looking for sort of the value themes-- the themes that really make sense as interest rates continue to move higher in the backdrop of higher inflation.

- Now, where does energy fit into all of this? Because we see them at multiyear highs right now-- what happens with that in the fourth quarter and going into the second half of next year? Because prices aren't coming down any time soon, right?

GARGI CHAUDHURI: Sure. I think that, you know, exacerbated by the fact that as we look out the window today, it's raining and a bit chilly, and we all focus on the fact that winter is coming, especially if you're in the northern hemisphere. And I think that brings about some other questions with respect to stockpiles and what that might mean for larger commodity prices.

So, look, there is a shorter term dynamic at play which could, perhaps, be somewhat positive for certain commodities. And we recently wrote a paper about the four areas of the market where we're seeing a lot of supply-demand imbalances. And certainly, commodities is one. And to that extent, investors have been focusing on getting a broad exposure to commodities as one way to hedge for those rising commodities and energy prices.

ALEXIS CHRISTOFOROUS: I also want to ask about real estate and how much investors are paying attention to pouring money into that area. I mean, today, we got the S&P Case-Shiller report that showed home prices up 19.8% year-over-year in August. So it's still very much a red hot market. Are investors seeing opportunities there? And if so, where are they looking among the ETFs?

GARGI CHAUDHURI: Sure. To your point, really a very hot market, and that's driven both by the demand side of the picture as well as the supply side of the picture, right? So we obviously saw Case-Shiller prices, but if you look at the other measures-- if you look at ForLogic or FHA-- all of those are basically showing house prices rising. But I think we have to look at the underlying drivers of what's driving the housing market.

And, of course, there is that demand story there where all of us who have spent the last 18 months working from home want a better home to work in. And at the same time, when you look at the supply side, inventories are at all-time lows. And we look at building permits, and that's up over 30% from 2019 levels. We look at existing home sales and we look at new home sales-- all of those data points are maybe not at all-time highs, but certainly at very strong levels.

So what does that mean for investors? I think what investors are trying to do is play it in three different ways. One of them is just sort of going for those homebuilder stocks. And ICB is one of the ETFs that come to mind that has gathered some inflows this year and has had a tremendous performance. I would also say that just looking at REITs is another area where the market is focusing on where, obviously, you have that housing market play, but at the same time, you also have somewhat of an income pickup and inflation protection.

So REZ, IYR, these are some of the sectors that we've seen some client interest and flows in. And I would say that for the most part, as some of the structural forces remain in place, especially demographics-- more people are going to turn 30 in the next five years than has happened over the last few decades. So that cohort, 30 to 35 age group cohort being so meaningfully high, is pretty positive for the housing market. And I think that keeps that story in place for some time. And those three cycles that I talked about are the ways that investors are playing that.

- And, Gargi, I want to shift gears a little bit-- the global economy has been hammered by chip shortages. But you say that that sector could actually benefit on the back of those woes. Are you seeing a lot of inflow? And what should we be looking at there?

GARGI CHAUDHURI: Yeah. Absolutely, I think that, look, the semiconductor story was something that came to our forefront for most of us just because of the chip shortages and how they impacted the supply chain, especially in the car market, right? But obviously, the demand for semiconductor chips has been something that has been growing for some time as we've moved to a more digitized economy. And that didn't happen during COVID. It just got exacerbated during COVID, again, as we all changed our work preferences and started work from home more.

Now, there is a way to play this where, obviously, when you try to have exposure to the entirety of the supply chain of semiconductor companies-- and we're seeing a ticker, SOXS, within the ETF space that has had tremendous performance from the pre-COVID time to now, and at the same time has gone to tremendous inflows. And we think that that story continues not just for the short-term-- this isn't just a supply chain story, this is much more of a longer term story, where I don't think any of our preferences for cars that are more attuned to more semiconductor chips, or having computers at home, or going back to the work lifestyle, that's not changing anytime soon.

So I think the demand for semiconductor chips do remain in place. And I think some of the supply challenges may end over the next 6 to 12 months, but the demand doesn't really change for the next few years or longer.

ALEXIS CHRISTOFOROUS: All right, Gargi Chaudhuri of BlackRock, thanks so much for being with us to talk ETFs.