Bloomberg Intelligence's top ETF expert names 21 funds that tap into the stock market's biggest themes for the rest of 2021 — and explains why investors should consider each one

• ETFs provide investors with an easy way to track multiple stocks at once across various sectors.
• Bloomberg ETF analyst Eric Balchunas has picked over 21 ETFs that he’s watching this year.
• These ETFs cover everything from cryptocurrencies, SPACs, gold, retail investing, and much more.
• See more stories on Insider’s business page.

“I’ve always found that if you find 10 stocks you really like and buy three, you always pick the wrong three. So I just buy all 10,” the investing legend Peter Lynch once said.

If Lynch has trouble picking individual stocks, the average investor probably does as well. One way to avoid that problem altogether is to buy ETFs, which let you invest in anywhere from a few dozen to a few hundred stocks all at once. 

ETFs allow investors to track the performance of an industry, an index, or even a commodity, and can be a great way for investors to gain exposure to the latest market trends. But which ETFs should investors be watching? 

Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, compiled a list of the 21 ETFs that he and his team are keeping a close eye on this year. These are the ETFs that correlate with popular market themes, including SPACs, cryptocurrencies, and more. During the recent Bloomberg Wealth Summit, Balchunas broke down what he likes about each of these ETFs and why investors may want to watch them closely for the rest of 2021.

Ticker: ARKK

Balchunas’ comment: “This thing is a juggernaut, and what it really showed was if you really swing for the fences you can actually overcome the drought and the outflows that have hit active managers.”

“Part of the reason for that is a lot of portfolios have gone cheap beta for the core, and then they decorate it with things that are totally opposite beta. We call them shiny objects, and so Ark has become something that you would put on to your cheap beta. And so we can tell in the flows that most of the money goes to cheap beta. But a good section of it goes to the sort of really high active share. And, of course, the performance helps and you have all that come together and Ark has been a juggernaut.”

“The question is, can they keep it up? A lot of the flows came in recently and you can see, you know, when flows come into a hot strategy, a lot of times, it doesn’t really work as well after. We’ll see what happens. Right now I think she’s flat this year, but it’s something to watch. She is going to keep expanding her universe of ETFs, you can see that there’s eight ETFs now, just launched the space one.”

“So Ark is something we’re always going to watch. It’s a very interesting active strategy.”

2. Grayscale Bitcoin Trust

Ticker: GBTC

Balchunas’ comment: “This is GBTC, it’s not an ETF. It’s an over-the-counter traded trust. And it’s going to have a lot of premium and discount action. That said, it’s really a sign of this race for Bitcoin ETFs and until a Bitcoin ETF launches, the flows in this have been pretty good. I think it has $30 billion at this point, which is a lot.”

“There’s now nine ETFs filed, we’ll see if they get launched. We think September 30th is when we’ll probably see the first Bitcoin ETF. If and when that happens, look for some people to leave GBTC or look for GBTC to convert to an ETF. Anyway, this is probably the biggest story going on right now in ETFs.”

3. XTrackers S&P 500 ESG ETF

Ticker: SNPE

Balchunas’ comment: “There’s a lot of ESGs out there. We find the ESG [ETF] that’s going to work the best is the ESG that is the most benchmark aware. So if you look at the holdings of this SNPE, it’s like a lot of BlackRock ETFs as well. It’s going to hold a Facebook and Exxon, and that’s going to turn off some hardcore people.”

“But we think that the returns that are similar to the S&P will make a lot of advisors and institutions more comfortable. So we think that’s probably where you’re going to see the assets. We also like clean energy. Again, stuff that’s very different than the index. So, TAN and ICLN and those are ones we’re also watching.”

4. Vanguard Total International Stock Index Fund ETF

Ticker: VXUS

Balchunas’ comment: “So international has been left behind in the past 10 years and an ETF like this we’re starting to see a lot more flows into as people rebalance into it. It’s lagged the US market by a ton here, so has emerging markets.”

“You know, these flows and this rebalancing is going to start to add up at some point and we have seen a little bit of a shift to value in some of the left behind areas. So we’re watching VXUS for this international play.”

5. First Trust IPO ETF

Ticker: FPX

Balchunas’ comment: “We’re also watching this IPO ETF, as well 5.5 this SPAC ETF [below].”

“A lot of people think of SPAK as the SPAC ETF but SPCX is actually the better one, or I should say the more pure one, because it only holds pre-IPO SPACs. So these are the ones that are real micro caps before they announce what company they’re going to acquire. SPAK holds mostly post-IPO SPACs. So this is the one we’re watching and now it’s the biggest SPAC ETF. People are noticing it because they want that purity.”

5.5. SPAC & New Issue ETF

Ticker: SPCX

Balchunas’ comment: See above.

6. ProShares UltraPro QQQ

Ticker: TQQQ

Balchunas’ comment: “TQQQ and SQQQ. These are leveraged Q’s, these are the popular ETFs with the Robinhood crowd. So, we’re watching these to see what’s going on with Robinhood because you look into the volume of SQQQ and TQQQ, and that’s a good gauge for how active the retail day trader is. And right now, looking here at the amount of volume going on here, it’s unbelievable. TQQQ in particular is the fourth most traded ETF on a daily basis. And it’s triple leverage Q’s. Now, if the Q’s start falling down, you’re probably going to see a rise in SQQQ as well.”

“But when these two ETFs start dying down volume-wise, I think we’re going to know that the retail day trader is starting to calm down a little bit. Maybe they’re going to go out in the summer. Pandemic’s over, you know, the market isn’t as easy to make money in and we’ll look for that as a sign. But these are two we’re watching, they’re leveraged ETFs punching way above their weight.”

6. ProShares UltraPro QQQ

Ticker: SQQQ

Balchunas’ comment: See above.

7. AdvisorShares Pure US Cannabis ETF

Ticker: MSOS

Balchunas’ comment: “We’re probably going to see more progress in the legalization of marijuana, and we watch MSOS because this is the only one that’s all US. And the US market is, I believe, five times bigger than any other country, or in that ballpark, so a lot of the action will be here. This one is the only one that’s all US.”

“It has a slick way of getting around holding multi-state operators, which is really an important part of the cannabis play and it does that by using swaps on the stocks. And so it’s grown quickly and people have noticed this one as well.”

“That said, the returns in this area are very volatile and uncertain. Sometimes even good news doesn’t really push it. Sometimes it rallies randomly. It’s a very volatile area, but one that we’re watching — and this ticker in particular we’re watching.”

8. North Shore Global Uranium Mining ETF

Ticker: URNM

Balchunas’ comment: “So obviously we call this clean energy for realists. We think nuclear energy is going to have to be part of the solution for the world to get to net zero, and this is one that’s been popping on that news. And it was really, it’s the worst performing ETF over the past 10 years, at least the index. But over the past year, it’s popped a lot. So it has a lot of room to run as well, and it’s one that we’re watching for that play.”

9. Amplify Online Retail ETF

Ticker: IBUY

Balchunas’ comment: “Obviously online retail is major, especially with the pandemic, and a lot of this is going to hang around. I think people are just done going to stores. What we like about this one and what we’re watching is that it’s more equal weighted, so you get way less Amazon. We think most of us probably have Amazon in our portfolio in a large amount somewhere else, so why double up that much? This gives you exposure to a lot of the other ones. So we sort of watch this one for a more proxy on online retail, not just Amazon.”

10. Invesco Nasdaq Next Gen 100

Ticker: QQQJ

Balchunas’ comment: “These are the 100 stocks that are next on deck to go into QQQ. So, it’s sort of like the JV team and we think if the Qs are so hot, so popular, and the innovation in that index is amazing, it’s just logical that this would be a launch.”

“I’m surprised it hasn’t been launched earlier. It took, you know, the ETF industry is 23 years old. I’m just surprised it took so long, but this one has been an instant hit for obvious reasons and it’s one we’re watching.”

11. iShares US Treasury Bond ETF

Ticker: GOVT

Balchunas’ comment: “What’s interesting about this one is it covers the whole curve equally, and so we find a lot of people will go into here when they want a safe-haven asset but they want a little more yield, because if you go to the short-term you don’t get a lot. We tend to see flows coming into this regularly, people like this, it’s low cost, and this is one we’re watching to see how people are feeling about the market as well.”

12. Vanguard Total Stock Market Index Fund ETF

Ticker: VTI

Balchunas’ comment: “I think this is going to ultimately be the biggest ETF in the world someday. Right now it’s third.”

“The reason is, this covers the whole entire market, it charges three basis points, plus with the SEC lending Vanguard does, the revenue makes your tracking perfect so you actually eat up those three basis points. So it’s basically free exposure to everything.”

“And what’s interesting about this is it’s FOMO-proof, because when we saw Tesla get added to the S&P 500 so late a lot of people were mad they didn’t own Tesla earlier. Well, VTI owned Tesla for 10 years, it owned GameStop, it owns all of them. So you never have the fear of missing out with VTI and we think more people going to come around to this and leave the large cap and the S&P 500. Not everybody, but there will be a migration and we feel like VTI is one to watch for that and you can see how S&P 500 was hurt by adding Tesla late.” 

13. JPMorgan Ultra-Short Income ETF

Ticker: JPST

Balchunas’ comment: “People are not real keen to go into money market funds as much. What they are using is ultra-short-duration ETFs that are actively managed, so that it’s a relatively safe place to park cash. Although it can move, it’s not an avid one, but you get a lot more yield for that kind of a safety. And we’re finding this area is very popular. MINT is another one from Pimco and JPMorgan, and Vanguard just launched one here. So just trying to eke out a little more yield for is being as safe and as low duration as possible, and that’s a hot area and a place we’re watching.”

14. Alpha Architect US Quantitative Value ETF

Ticker: QVAL

Balchunas’ comment: “We think that the next ARK could be a deep value ETF because if and when value starts popping like it is this year, look for these ETFs here. This is our intensity rank for how value-y value ETFs are, and you can see FOVL, DEEP, QVAL, these will pop the most. These will double and maybe even triple the performance of the Vanguard value or the Russell value. And so we think the way that ARK was a shiny object on the growth side, one of these could be a shiny object on the value side, so we’re watching these for that value comeback.”

15. SPDR S&P 600 Small Cap Value ETF

Ticker: SLYV

Balchunas’ comment: “I think small-cap value is the most left-behind area, and so of course it makes us think that this is an area that might lead, right? So in the 2000’s small-cap value destroyed the S&P, the S&P was flat. So things change, regimes change. And so we look for the small-cap value area as a leading indicator for if there is a bigger regime shift and this is one of the ones we watch.”

“IShares also launched one called, I believe it’s called SVAL. And it’s basically a really concentrated small-cap value. So it’s also going for that shiny object potential. We do find a lot more launches these days are very concentrated. There’s a limited number of holdings. So be wary — when you pick any kind of ETF for their small-cap value or total value, look at the concentration of holdings. Some are going to pop a lot, and some are going to be more watered down.”

16. iShares Core Total USD Bond Market ETF

Ticker: IUSB

Balchunas’ comment: “This is the total bond ETF. To me this is a better version of AGG. The AGG has been this easy to beat benchmark for bond managers, but when you compare them to the total bond market, which includes a little international and a little high yield, their beat rate goes down a lot. It goes more into lines of like equity managers. And so this is a fascinating ETF — it’s growing very slowly, it’s very cheap, and it gives you the whole bond market and it’s a better benchmark for managers. So we’re watching this one to see if the world will finally move on from AGG a little bit.” 

17. Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF

Ticker: SRVR

Balchunas’ comment: “Everybody thinks of VNQ with REITs. REITs are for yield, but you wouldn’t use this for yield. This is an interesting play on data and infrastructure, especially if the infrastructure bill from Biden goes through. They’re going to spend a lot of money on cell towers and that kind of thing. And that’s what this ETF tracks and you can see it’s done a really good job in performance, but again it won’t yield a lot. Again, warning, I wouldn’t use this for yield — but this is one we’re watching for the infrastructure play that we might see happening as well as an alternative innovative ETF in the REIT space.” 

18. SPDR Gold MiniShares

Ticker: GLDM

Balchunas’ comment: “Gold is now cheap. I think GLD is 40 basis points, now you can get gold ETFs under 20 and GLDM is one we’re always watching. We also watch gold in terms of how it’s comparing to Bitcoin. Gold and Bitcoin have this rivalry now that we’re going to see play out and so GLDM, to us, is probably one that will grow bigger than maybe all of them someday because it’s cheap.”

19. Dimensional US Core Equity Market

Ticker: DFAU

Balchunas’ comment: “So Dimensional came into the ETF space last year and what they did is they have active, but they price it at beta pricing. So it’s a very, very low cost, active ETF here. And this is working. We think if you’re going to do active you need to be really active, or you’ve got to be really cheap, and this one’s really cheap and it’s working.”

“Also, DFA is going to convert a mutual fund into an ETF, and it’s going to bring a small wave of products that move from mutual fund to ETF. In DFA’s case this is a $32 billion conversion. This, we think, is going to be the more popular asset-rich way for mutual funds to enter the ETF world. You bring your track record, you bring your assets, and you sort of start on third base instead of going into the brutal ETF market with nothing but this new launch, which is what some of them are doing through active non-transparent. So anyway, DFA taps into that issue as well.”

20. Xtrackers MSCI All China Equity ETF

Ticker: CN

Balchunas’ comment: “China is a pain. It’s all kinds of share classes, but CN is the easy button. It holds it A shares, N shares, P chips, you name it. We think this is an ETF that will grow if and when China starts becoming more popular in portfolios.” 

21. Simplify US Equity PLUS Downside Convexity ETF

Ticker: SPD

Balchunas’ comment: “The Simplify US Equity PLUS Downside Convexity ETF is a mouthful. People are nervous the S&P is going to go down real quick at some point. So what this does is it holds the S&P so you get beta, but then what it does is it holds some really out-of-the-money puts and call options so that if there’s a real quick move to the upside you can get a little extra juice on it. And if there is a real harsh move to the downside, you’ll buffer some of it. So what they’re doing is they’re using options to sort protect on the downside, and we think this kind of option-overlay strategy is something we’ll see more of.”

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