0:00 spk_0
One of the best performers of the last month has been the healthcare sector, despite seeing little ETF flows, so it could now be the time to diversify your portfolio through ETFs. With us to discuss Todd Stone, Tertiga Securities senior ETF and technical strategist for this week’s ETF report brought to you by Invesco QQQ. Todd’s in the studio with me, which I’m excited about. I’m an avid reader of your notes, so it’s fun to have you here to talk about this. Um, so let’s talk about this diversification thing. Like everybody who comes on here says.Everybody has to diversify. It shouldn’t just be about all about tech, but is that actually happening?
0:36 spk_1
Not by our work and our conversations, right? So if you, if you think about the backdrop for the last couple of months, you’ve had a rush into AI type plays. You have 10 stocks that are 40% of the S&P 500 tech is 35% to 36%, right? Those are all 60 to 70 year highs. Uh, you now have flows into the overall ETF spectrum really accelerating, so there’s an embracement of the rally going on. All benefiting investors, that’s great.But I think it’s a great time, especially at the end of the year, to say, OK, how much exposure to AI do I really have because if I own the S&P and large cap growth and a thematic AI fund, that’s a lot of the similar names. So I think when you look at flows to other categories, especially you mentioned healthcare or defensive type names, it’s been dormant.And I’m not saying you don’t wanna go overweight those areas, but at least add some into the future. Uh, small caps are the same idea. There’s been outflows from small caps this year. No one wants any piece of them.
1:26 spk_0
No, explain something to me because health care has performed well. The price action has been positive this quarter and this month, so.Sometimes when we talk about ETFs and we’re talking about flows that don’t necessarily match price, explain to people how that canhappen.
1:41 spk_1
So flows are a great barometer or a temperature barometer of investor behavior. So you can have an ETF rise a stock price without the endorsement of flows, right? There’s plenty of other players in the market pools.But so when I see healthcare starting to improve and I also line it up with performance that’s frankly been awful over the last few years, and I see outflows that tells me it’s ice cold and if I wanted to be a contrarian and try to diversify the portfolios, that’s where to start hunting. And now you’re seeing, you see that manifest. I think there’s a pretty good catch up trade here.Uh, but going back to your question again, it’s all about the temperature towards sector. It’s very hot towards tech, ice cold versus health care.
2:14 spk_0
Um, let’s also talk about leverage in the market as expressed through ETFs because we, you know, when we talk about, oh, is there a bubble? Are there areas of over.Exuberance in areas of risk, we tend to look at leverage. So what is thattelling us?
2:29 spk_1
So levered ETFs really came into into vogue in 2020, right? Markets, uh, economy shuts down. People are getting stimulus, markets go straight up. People use leverage. Um, I think if you’re looking for a barometer that tells you how over enthusiastic people are, it’s the levered ETF space, right? And that’s part of the being in a bull market. But when you look at the the the ratio of assets and levered ETFs versus inverse ETFs, those ones are gonna go short.That’s at about a 12:1 ratio. It’s the highest in our data set,
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so people are going much more long and they’re going short.
3:00 spk_1
They’re not seeking out protection, right, whether it’s through hedging or option strategies, and that tells us just to be a pinch mindful heading into 2026, especially given the concentration that’s going on there. So I, I would love to see that reset. You’ve seen some pockets like the quantum area reset a little bit, but it’s not been a wholesale reset for a lot of corners.Um, it would be painful, but I almost think necessary too for the durability of a bullmarket.
3:24 spk_0
I mean that also means though that when we do see these pullbacks, those people are feeling a lot more pain.
3:29 spk_1
Oh,absolutely. I mean and
3:30 spk_0
then does that then trigger other behavior? I mean, you had for example Bill Ackman the other day saying, well, my my investors in Fannie and Freddie are alsoInvested in crypto and they’re having to cover their crypto and sell Fannie and Freddie as a result. So like you see these unexpected knock on effects. It
3:46 spk_1
creates a source of funds, right? If I have a position in crypto or some of the more speculative high beta areas and I need to sell something, it’s gonna be that, and that can create a feedback loop that echoes throughout the markets. You haven’t necessarily seen it from the mega cap names and through the cap weight indices, but other corners have definitely taken a hit over the last month or two.Um, so do they bounce back? We’ll see, but I think that’s, um, I would really keep an eye on the leverage space because that’s where a lot of the enthusiastic behaviors.
4:12 spk_0
Andthen I do want to ask quickly about crypto specifically, right? Because it is such a new space but such a huge space already, what’s.Stands out to you that could indicate what may comenext.
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So I, I think crypto is toying this line between mass enthusiasm because it’s a new area, right? You’re seeing all sorts of crypto ETFs come out and then mass adoption because it’s rare you have a new asset class available to the mass, uh, community of investors. I got a little bit deterred by the amount of product that was coming out recently, right? You look at ETF launches, investors wanna go what’s to what’s hot.And when I start to see altcoins and stuff that frankly none of us really know about that creates a backdrop of hey, just be careful here. I think in the near term Bitcoin’s a little bit oversold. Can you see it bounce? Yes, but um, you know, I wonder if risk is off the table right now for crypto just given how enthusiastic folks got in terms of these launches.