Get an update on market volatility and new ETFs from Ryan McCormack
Ric Edelman: Joining me on the program is Ryan McCormack. He's the Factor and Core Equity ETFs Strategist for Invesco's flagship ETF, the Invesco QQQ. Ryan, great to have you on the program.
Ryan McCormack: Thanks, Ric. Great to be back.
Ric Edelman: So talk about your observations about what's been going on in this wacky world of 2022 with the financial markets. We began the year with the worst January in a very long time. Do you subscribe to that axiom that so goes January, so goes the year?
Ryan McCormack: Not all the time. You know, certainly no question about it. We've seen some increased volatility centered around the Fed and kind of where we are in terms of the economic cycle and any sort of change in terms of policy. Much handwringing about the pace of potential rate increases and unwind of the balance sheet, and then of course, sprinkle in a little geopolitical risk that's certainly intensifying as of today, and you have a perfect recipe for some equity volatility, but no question about it, we've seen a lot of equity volatility thus far in the year.
Ric Edelman: So why are you investing in the first place? If you're investing for long term goals, things you're going to accomplish in the next ten or 20 years, whether it's college for your kids or your own retirement, then frankly, who cares what happens in 2022?
The importance of a long-term view of your finances
Ryan McCormack: You're absolutely right. I mean, I think not only at Invesco, but in general, personally, it's very important to have a long-term view of your total financial picture. And, you know, along those ways, there may be events or portions of your overall asset allocation that you are looking to fund something in the short term. But I think from a holistic standpoint, as you had alluded to, it's important to kind of remain fixed on your long-term goals.
Ric Edelman: You know, it's really fascinating when we talk about volatility, people forget that volatility goes both ways. There's upside volatility as well as downside volatility. You can't have one without the other or it wouldn't be volatile. So do you find, however, that the human dynamic, the investor psychology is more engaging here than is often warranted, that people tend to get more focused on volatility than is perhaps healthy for them to do so?
Ryan McCormack: I think at times, right. I mean, certainly fear sells, right. And I think you said it perfectly. As, you know, volatility to the downside is certainly under much more of a microscope. And I think that's where people look at and talk about it in equity market backups. But, you know, choppiness in the market I view as something that's very healthy. You know, it's something that we experience generally a couple of times per year. It kind of allows investors to reassess and almost refocus, gives an equity markets a chance to pause and almost catch up. So I think it's perfectly healthy. But, you know, in general, I do think from a long-term perspective, again, it's important to not put too much credence in short-term fluctuations and certainly downside volatility. In that case.
Ric Edelman: You know, it's easy to say that, you know, as academics, as experienced professionals in the financial field, it's, I think, easy for folks like you and me to be calm, cool, rational, measured, to take the long term. Besides, it's our client's money. It's not ours. So that allows us to be a bit dispassionate. I remember joking, actually only one of us was joking, with my doctor, and he was talking about something he was going to be doing. And I said, "Is this going to hurt?" And he looked at me, he said, "Not me. I was like, well, that's not a lot of consolation, frankly. I'm glad it's not going to hurt you. But... So what do you observe? QQQ is one of the largest - what is in the top five, isn't it - largest ETFs in the country?
Ryan McCormack: Yeah, it is number five.
How many investors actually own QQQ?
Ric Edelman: How many investors does that translate to? Do you even know how many millions of people own the fund now?
Ryan McCormack: You don't. It's held. You know, I think when you're looking at things like 13F filings, right, you'll see some of the largest institutional holders. But in many cases that may be part of a model portfolio that you just don't know how many investors are there. But I would wager a guess that the number may be approaching millions.
Ric Edelman: I would assume so as well. And if anybody is kind of shocked that you don't know who the investors are or how many, it's because think about it, if you own QQQ, you didn't open your account at Invesco, you opened a brokerage account at Schwab or Merrill Lynch or wherever, and you bought it through them. So Schwab knows if you own QQQ because that's where your account is. But Invesco doesn't know because Schwab just sent Invesco the money. They didn't send your name along with it. So that's why Invesco doesn't know who you are. But I think you're right. With the huge amount of money that is in the fund, what's the current asset value?
Ryan McCormack: Now we're at $190 billion.
Ric Edelman: $190 billion. I think, yes, it's fair to say there are millions of Americans who own this fund. Do you have any data that tracks the inflows and outflows of the fund? Have you observed, for example, in January when the market fell (the Nasdaq fell about 10%), did you notice an unusual amount of inflow or outflow in the month of January?
Ryan McCormack: It's an interesting data point because we didn't notice an outflow.
Ric Edelman: And which means we're really talking about not managing the money, we're talking about managing the client. It's the client behavior, the client attitude, the motivations of the client as to whether they want to buy or sell, whether they want to own it or they want to make a bet against it, which is what shorting is all about, where you're actually making a bet that the fund is going to go down in value. And so we have to recognize that very often people are taking a perspective that really has nothing to do with the fundamentals, the attitude that this is a long-term focused investment. You know, I often ask folks when they ask me, gee, Ric, should I sell now? You know, I'm worried about market volatility. We've got rising interest rates, we've got rising inflation rates. We're worried about what's happening in Europe and with North Korea and all of these issues that are so dynamic, people often say, gee, should I sell or gee, should I sit back before I buy more? And my answer to them is always, Well, if you did invest or if you are already invested, when were you planning to withdraw the money? And they typically say, Oh, not for 10 years or more. I'm like, Well, do you think the price will be higher 10 years from now? And they always say yes. So if you think the price will be higher in 10 years, then who cares what's happening in the next six months? So here we are talking about QQQ and the overall markets and such. But I think a lot of folks, even though it is the fifth largest in one of the oldest ETFs, been around for over 20 years, I think, still a lot of folks don't know what that is. So give us a real quick sentence or two on what the QQQ ETF invests in.
QQQ tracks the NASDAQ 100 Index
Ryan McCormack: Sure. So QQQ is tracking the Nasdaq 100 index, which is the 100 largest companies listed on the Nasdaq Exchange X Financials. So there will not be financials in the portfolio.
Ric Edelman: Meaning no banks.
Ryan McCormack: Correct. And as we look at it, it's a portfolio of growth-oriented companies. That's sort of the types of companies that have listed on Nasdaq historically. And we've seen it blossom into one of the preeminent large cap growth strategies in the world.
Ric Edelman: That's Ryan McCormick. Ryan, thanks so much for joining us on the program. Today has been really helpful and fascinating conversation.
Ryan McCormack: Thanks, Ric.
Ric Edelman: Ryan and I chatted for actually about 20 minutes, if you'd like to hear and watch the full conversation because we recorded it on video as well as audio, just go to our website, TheTruthAYF.com.