Jeff Spiegel, U.S. head of BlackRock Megatrend, International and Sector ETF, joins Yahoo Finance Live to share which three areas of the market present the biggest opportunities for investors looking for growth.
RACHELLE AKUFFO: Welcome back. More investors are looking to protect their portfolio with ETFs as recession fears escalate. But which ETFs are the most inflation resistant? Well, joining us now is Jeff Spiegel, US head of BlackRock Megatrend International and Sector ETF, as part of our ETF report brought to you by Invesco QQQ. Good to see you. So a lot of people wondering, bracing for inflation versus bracing for a recession. What are your picks in terms of the best approach to this with ETFs?
JEFF SPIEGEL: First of all, thanks so much for having me back. It's a pleasure to be with you. And really, what I would lean into is the idea that we don't think investors have to choose between capturing long-term structural growth and inflation resilience. In particular, we see three areas of the market where there's a huge opportunity to position into growth, but also that inflation protection.
And those three areas specifically are around the future of food. Our ticker to capture that is IVEG, I-V-E-G. Clean energy, I-C-L-N, ICLN is our ticker. And then last, and certainly not least-- in fact, this has been where we've seen the most flows-- infrastructure, specifically into US infrastructure. Our ticker there is IFRA.
And the thesis really is that each of these areas is inflation resilient for different reasons. So when we think about the future of food, food input costs have risen dramatically, as much as 10% just on this year. And that's really spurring smarter solutions to food production. In fact, we see estimates that we could actually add $175 billion to GDP through just smarter agriculture, using sensors to more efficiently distribute resources. So those sorts of investments are happening in response to these increases in food prices. We see that as a really natural place to get growth.
SEANA SMITH: Jeff, you mentioned infrastructure, railroads one of your plays here, digging through your notes. JP Morgan just downgrading Union Pacific and Norfolk Southern, citing recession risks. What are they getting wrong?
JEFF SPIEGEL: So I think we have to think about infrastructure as a broad category. So rail is certainly a part of the infrastructure story. But on the whole, infrastructure owners in particular are really set to benefit. And the ways they're going to see that are that, one, they tend to have long-term fixed debt.
So the value of that debt is effectively eroding, despite being fixed. That frees up more operating margin. If anything, their operating margin actually tends to grow over time, because they tend to have inflation linked components to their contracts, either from a regulatory perspective or an individually negotiated perspective.
And then, third, people aren't able to turn off their water or turn off their light switch at a time like this. So rail is only a small part of infrastructure, but most areas are not cyclical. They're not things that people will adjust in relation to an economic downturn.
DAVE BRIGGS: And as for food, what's the biggest variable there? And how would an end to the Russian invasion of Ukraine impact that?
JEFF SPIEGEL: So I think we have a number of different inputs that have led to the rise of inflation. It's certainly geopolitical tension. It's certainly the spending that went on during the pandemic. It's certainly supply chain challenges. But our view-- and we actually just recently published our global outlook-- is, regardless of the outcomes of any of those individual areas, we think that inflation is going to be persistent.
Whether it's reached a peak or not, we don't see it going back to the low levels of the past two decades. And so that means it's not just a moment for inflation resilience, but that these strategies can really be effective for investors over the coming months, or potentially, even years, as inflation does persist.
RACHELLE AKUFFO: And Jeff, ETFs are usually considered a way for perhaps retail investors to get into this space. But what are you actually seeing them putting their money into right now? And what would you advise them at the moment?
JEFF SPIEGEL: So of the areas we talked about today, infrastructure more than anywhere else. So that ticker I mentioned, IFRA, our US infrastructure ETF, has seen over a billion dollars of inflows year to date. IGF, our global infrastructure ETF, has seen a few hundred million dollars of flows year to date. So we're actually seeing positioning across client types from end investors to financial advisors to institutions, really looking to infrastructure for that inflation resilience.
And again, broad infrastructure. Not looking at any particular names, but the reason these ETFs are so effective is, you can capture the whole infrastructure value chain and really get those benefits across the spectrum in infrastructure and for inflation protection.
DAVE BRIGGS: Infrastructure, food, and green energy. Really appreciate this. Jeff Spiegel, thanks for being with us, sir.