VettaFi Vice Chair Tom Lydon joins Yahoo Finance Live to discuss the markets amid the Federal Reserve's rate hikes and investment opportunities provided by ETFs in the inflationary environment.

Video Transcript

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SEANA SMITH: $61 billion has entered the ETF market since the beginning of the year. So let's talk about what flows could look like for the remainder of this year. We want to bring in Tom Lydon. He's been VettaFi's Vice Chair for this week's ETF report, brought to you by Invesco QQQ.

Tom, it's great to see you here. So certainly, $61 billion has flowed into the ETF market since January 1. What does that signal to you just in terms of the demand that you're expected to see going forward?

TOM LYDON: Well, we had the second biggest year in flows last year, over $600 billion. And it's off to a good start, Seana. But it's telling us something completely different.

On the equity side, most of it was US flows last year. This year so far, five times as much money has gone into international ETFs, developed markets and emerging markets, and all for the right reasons. Valuations are a lot less expensive, almost 20% to 30% less on the PE side. And when you look at emerging markets in some areas, single digit PEs where we're seeing 17 PE here in the US.

So people are looking at opportunities. They're also looking at the pendulum kind of swinging back towards a little bit of love for some of those unloved areas.

- What are some of those areas and what are some specific funds that would allow you to take advantage of that?

TOM LYDON: Well, a couple of the ETFs that have gotten the most flows so far this year is the JP Morgan Beta Builders Europe ETF, ticker symbol BBEU. And then the iShares core MSCI Emerging Market ETF, one of the best emerging market ETFs out there at a very inexpensive price, IEMG. Those are some that are getting collectively almost $8 billion so far this year, David.

SEANA SMITH: Tom, what are you hearing from advisors just in terms of the mixed data that we are getting? Lots of talk about a looming recession, yet time in and time out, it seems like we keep getting these econ data numbers that are very, very impressive. How is that influencing the thinking right now on the Street?

TOM LYDON: So great question. We're surveying advisors all the time at VettaFy. They are feeling like the Fed's got this inflation thing under control, which is good, although they've baked in a couple more rate hikes. At the same time, they know they can't top tick rate hikes. So what they're doing is pushing longer duration, lower credit quality, trying to grab more longer term exposure as far as yield. And they know that this is not going to happen forever, so they're grabbing it while they can.