ETFs: Investors ‘taking sector bets on long-term growth,’ GTS principal says

Reggie Browne, Principal at GTS, joins Yahoo Finance Live to discuss investing in tech-oriented ETFs, growth for ETFs amid Fed rate hikes, energy ETFs factoring in crude oil, and ETFs for adapting to rake environments.

Video transcript

KARINA MITCHELL: It is now time for the ETF report brought to you by Invesco QQQ. Many investors are bracing for a more volatile stock market this year, but investment in specific sector ETFs could provide some opportunities. Here with more on that, let's bring in Reggie Browne, principal at GTS. Reggie, thanks so much for being here.

So I have to start talking about tech because January was just a horrific month for that sector. But February so far seems to be looking up. The month is early, but Alphabet came out with some stellar earnings. Apple also record numbers as well. So is it too volatile to start looking perhaps at jumping into the tech sector? Or is this actually a good time to sort of maybe come up with some good deals? And if so, which particular areas should we be looking at in your opinion?

REGGIE BROWNE: Sure. Well, you know, what we're seeing, some investors have actually stepped in and starting to buy tech. Based on historical levels, these are interesting levels based on some of the fundamentals of underlying companies. We're seeing a lot of action in the technology sector ETF XLK, where the top holdings is Apple, Microsoft, and Nvidia. And then we're seeing a lot of interest in software ETFs.

So one, for example, is iShares's IGB, where, again, the top holdings there is Microsoft, Salesforce, Adobe, Intuit. So I think there's a lot of opportunity, and we're seeing investors placing bets that-- on the fundamental basis that the January sell-off is a good place to start stepping in. And those ETFs I mentioned previously, you know, are good examples to get broad-based exposure from a sector basis.

KARINA MITCHELL: And so, you know, what should investors be evaluating before deciding on investing in sector ETFs, particularly amid all of this volatility, right? What's your advice perhaps as far as duration and how often to reassess this year, as far as rotation strategies, as well?

REGGIE BROWNE: Well, as rates go, as Fed funds go to 2%, the market has priced in seven hikes of 25 basis points each. So that gets us somewhere in the boundary of 1.75% to 2% in the Fed funds rate. Higher rates generally are not great for growth stocks. They serve a lot of capital. But, you know, literally, I think investors should be looking at just individual companies and taking sector bets based on long-term growth opportunities.

I think there are some fantastic buys out there. You know, we're not going to stop buying Apple products. And that's representative of just the globalization opportunity in technology and the change in the economy based on technology. So investors should look at the big picture here and not necessarily react to short-term movements. I agree, January was somewhat abrupt, but we've also had a long run in the marketplace.

KARINA MITCHELL: And then, Reggie, what about energy ETFs? Because they've been a big play, but amid all of this heightened volatility and geopolitical tensions, do you think they're a good investment right now?

REGGIE BROWNE: Well, you know, they've had a great run. Your analyst just talked about the price of crude. You know, I think a lot of it points to what happens in Russia around Ukraine and if President Putin does cut off supply to Europe or starts playing around with that. So a lot of analysts have started to point around to 150 bucks for a barrel of crude. Personally, I think some of the areas to invest in using ETFs is the Invesco DB Oil Fund. It's a futures-based ETF that tracks the price of crude using futures. That's had a terrific run.

And then if you look at sector ETFs, PXE, which is another Invesco Energy Explorer Driller ETF, where the top holdings there is EOG, Occidental, and Phillips, Petroleum 66, you know. And analysts are increasing their buy ratings on underlying fundamentals of these companies. So I think it's a good opportunity to step in and go for the ride if geopolitical forces do dictate oil is going to go to 150 bucks a barrel, and then, of course, the output from Saudi Arabia.

KARINA MITCHELL: And then, Reggie, also, before we let you go, also, you suggest some ETFs for a rate increase environment as well that may be good plays as well, one of them BLKN.

REGGIE BROWNE: Yeah, in a rising rate environment, you want to be in rate-adjusted products. And there are three that I'm very familiar with. I launched BKLN for the senior loan ETFs a number of years ago. That's great for a rising marketplace. And then also we're seeing a lot of action in the three and seven-year duration Treasury ETF, IEI from iShares. So these are great products for a rising rate environment.

And another one, a smaller ETF, is the Pacer Floating Rate ETF, and that ticker is FLRT. And, you know, as you do sector rotation and you want to preserve cash, you want to get conservative, having a short duration or a rate-adjusted ETF makes sense. And these are all tradable. And the capacity of these ETFs are quite large. And they're easy to absorb large amounts of capital inflow in one day.

KARINA MITCHELL: OK, well, record inflows into ETFs last year, so we'll have to see if that momentum continues. Thank you so much for your time today, Reggie Brown, principal at GTS.