Here are the big trends to watch at the Exchange ETF conference this week

I’m at the ETF Exchange Conference in Miami Beach, where 2,000 registered investment advisors and ETF providers have descended on the city for the industry’s largest gathering. Despite a disastrous year for stocks and bonds in 2022, exchange traded funds saw inflows of roughly $600 billion, while mutual funds continued to see outflows. ETFs are now a $6.8 trillion business and rising every year. While there is plenty of talk about the economy and the chances of a soft landing, the hot topics — as always — include where the money is heading in 2023. “Advisors are telling VettaFi that they are now expanding outside of the traditional allocation models by incorporating more fluid ETF income tools in response to the Fed’s path toward higher interest rates. Think active, dividend, foreign debt and alternative income ETFs,” Tom Lydon, of VettaFi, the conference sponsor, told me. Other hot topics Buffer products. These ETFs offer participation in stocks or bonds, while also providing some level of downside protection. This was arguably the big product of 2022, with Innovator U.S. Equity Power Buffer (PNOV) , and ETFs like it, raking in cash in the second half of the year. These funds work great in a down-to-sideways market, but investors give up significant upside when the market is trending up. Dividend appreciation. No one cared about dividends in an up market, but last year there were big inflows into stalwarts like Vanguard Dividend Appreciation (VIG) and ProShares Dividend Aristocrats (NOBL) , which invests in companies with a history of steadily increasing dividends. International, which has started the year outperforming the U.S. for the first time in years. “Led by Europe, international region flows (+$5.7 billion) posted record inflows [in January],” said Matt Bartolini from State Street Global Advisors in a recent note to clients. Single-country funds had their fifth most ever (+$4.1 billion), led by China, Bartolini noted. Fixed income. There may be some life left in the old 60/40 stock/bond portfolio. Both are doing better after a disastrous 2022. Bond ETFs had $20 billion of inflows in January, led by $7 billion into investment grade corporate bonds (3rd best ever) and $6 billion into longer duration government bonds, according to Bartolini. “I believe fixed income ETFs are setup to have a historic year,” Nate Geraci from the ETF Store said in January. “Fixed income, on the whole, looks MUCH more attractive than it did at the beginning of 2022. … Given everything else going on in the markets, I think investors will be perfectly content scooping-up 4%, 5%, 6%+ with relatively minimal risk.” Formerly hot sectors with muted enthusiasm ETFs are a giant popularity contest: You can see the flows and tell what’s hot and what’s not. Among the formerly hot sectors with less enthusiasm: ESG ETFs. The environmental, social and governance space has become heavily politicized. There is still debate on how to weight the factors, and performance has been disappointing. The big issue: “Is there a successful path forward for this space?” Geraci asked. Participants, including Jennifer Grancio, CEO of Engine No. 1, will argue that there is. (Grancio successfully convinced Exxon Mobil shareholders to give it three seats on the company’s board.) Cathie Wood and the Ark funds. She gave the keynote interview at last year’s ETF conference, and despite a terrible performance her legions of fans have not deserted her. Outflows from the flagship fund were minimal in 2022. The fund is up 37% this year. Thematic tech in general. Cybersecurity, gaming, robotics, 3D printing, social media and cloud computing all had their moments in the sun, and faded. This year, they’re back, but despite the surge in thematic ETF performance to start the year, investors have yet to throw significant sums of money into the game. “Despite the surge in thematic ETF performance to start the year, investors are yet to start allocating again. … The category has seen four straight months of net outflows,” Mike Akins from ETF Action told me. One thing no one is predicting: a bitcoin ETF. Forget about it. Today at the ETF Conference 10:45 a.m. ET — Live on CNBC: Jennifer Grancio, CEO, Engine No. 1 She started a proxy fight with Exxon and got Engine No. 1 on the company’s board to push it to diversify beyond oil. Her Engine No. 1 Transform ETF (VOTE) is advocating for more socially responsible investing. She is at the center of the ESG controversy. 12:35 p.m. ET — ETF Edge Live on Halftime Report : Tom Lydon, vice chair of VettaFi, and Tony Rochte, Morgan Stanley’s global head of ETFs 2 p.m. ET — CNBC PRO: Laura Morrison, chief revenue officer at Direxion Direxion runs some of the wildly popular leveraged and inverse ETFs: 3x bets for and against semiconductors, the S & P 500, Technology, China, etc. These funds are popular among day traders and really sophisticated hedge funds. They regularly show up in the heaviest trading volume list. They also run a suite of single-stock ETFs around Apple, Tesla, Amazon, Microsoft and Alphabet. 3:00 p.m. ET — on : Tony Rochte, Morgan Stanley global head of ETFs; Dave Nadig, financial futurist at VettaFi; and Vance Barse, founder of Your Dedicated Fiduciary

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