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Time for Outflow from Asset-Rich Cash-Like ETFs? 4 ETF Picks

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The Omicron variant of coronavirus is hitting worldwide, which, in turn, has crippled the investing world again with uncertainty. Volatility may become the name of the game ahead thanks to a host of factors ranging from rising Omicron cases, a likely hawkish Fed in 2022, worldwide supply chain disruptions and the resultant price inflation and last but not the least tensions in China’s property market.

Though Americans still have faith in the market rally and the economy, their fear for stock investing can’t be ignored. Investors poured in more than $43 billion into money market funds last week, taking the total tally of cash raised in the past seven weeks to a massive $226 billion, according data from Goldman Sachs, quoted on CNBC. Notably, SPDR Bloomberg 1-3 Month T-Bill ETF (BIL - Free Report) amassed about $498.3 million in past two months.

Money market asset generation is high in 2021 despite the rally in stocks, with assets under management in cash equivalents hovering near a record $4.7 trillion, the data revealed. Fund managers were net 36% overweight cash, the highest allocation to the asset class since May 2020, according to Bank of America’s monthly fund manager survey, as quoted on a Yahoo article. Besides cash, investors also focused on defensive sectors of the market such as health care and REITs.

Will the January Effect Cause Outflow From Cash?

Investors tried to retain money in the wake of the uncertainty in recent weeks caused by a surge in new virus cases in the world. So, it was more important for businesses and individuals to pile cash for day-to-day expenses.

Having said this, we would like to note that considerable outflow from cash could happen in January when money managers make their initial bets of the year. January normally accounts for about 134% of the yearly flows, according to Goldman, meaning the month typically sees a big inflow while the rest of the year records outflows.

This definitely has a connection with the “January Effect.” January Effect is a seasonal increase in stock prices due largely to year-end tax considerations. Investors redeploy their capital to speculate on weaker performers in January after selling winners in December to create tax losses. This phenomenon pushes the stock market higher in the first month of the year.

Hence, assets are likely to move out of cash and make their ways toward other areas. Let’s highlight a few ETFs that could see asset gains in January 2022.

ETF Picks

Vanguard Total Stock Market ETF (VTI - Free Report) – Zacks ETF Rank #2 (Buy)

The underlying CRSP US Total Market Index represents nearly 100% of the U.S. investable equity market covering nearly 4,000 constituents across mega, large, small and micro capitalizations. VTI charges 3 bps in fees.

Vanguard Small-Cap ETF (VB - Free Report) – Zacks ETF Rank #2

The underlying CRSP US Small Cap Index includes U.S. companies that fall between the bottom 2%-15% of the investable market capitalization. There is no lower limit in market capitalization. The index includes securities traded on NYSE, NYSE Market, NASDAQ or ARCA. VB charges 5 bps in fees.

iShares Core MSCI EAFE ETF (IEFA - Free Report) – Zacks ETF Rank #3 (Hold)

The underlying MSCI EAFE Investable Market Index comprises large, mid and small-capitalization developed market equities, excluding the U.S. and Canada. IEFA charges 7 bps in fees.

Defiance Hotel, Airline, And Cruise ETF (CRUZ - Free Report)

J.P. Morgan’s Lakos-Bujas expects post-pandemic “reopening stocks” – such as travel, leisure, hospitality, and experiences – and energy are likely to benefit. These stocks are undervalued in nature.a

The underlying BlueStar Global Hotels, Airlines, and Cruises Index is a rules-based index that consists of globally-listed stocks of companies that derive at least 50% of their revenues from the passenger airline, hotel and resort, or cruise industries.


 

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