ETF Edge

These three themes are driving the ETF industry in a volatile year, says head of iShares Americas

The year in ETFs: How the industry's faring in a volatile 2020

It's been a wild year for the exchange-traded fund industry.

The space's record asset growth this year is set to continue despite risks surrounding the coronavirus pandemic, the U.S. presidential election and the broader economy, Armando Senra, head of iShares Americas at BlackRock, said Monday on CNBC's "ETF Edge."

"It's been a roller coaster of a year for all of us and our lives and it's no different for the ETF industry. But overall, it continues in a strong path for growth," he said.

Three central themes have been driving investors to the ETF market in this historically volatile year, Senra said.

The first is the flight to fixed income ETFs, on which BlackRock has been capitalizing for several years. The second is sustainable investing, which Senra said now represents 20% of iShares' flows and has seen "very strong growth."

Lastly, investors have been making calculations on risk for the better part of 2020, Senra said.

"We've seen investors becoming more aware and concerned about inflation, and you've seen flows into commodity ETFs" and TIPS, or Treasury inflation-protected securities, he said.

U.S. investors are also finding their way back to overseas equities, Senra said,

"Now, with the weaker dollar and also the underweight positions that most investors have to international, you're beginning to see flows back into international," he said. "So, I would say those are the main themes: fixed income ETFs, the growth of sustainable investing, and what you've seen this year in terms of risk-on and risk-off and how investors have played that out."

One big way investors have been trying to avoid risk is by putting their money in what's working, namely Big Tech, Kevin O'Leary, chairman of O'Shares ETFs and a "Shark Tank" co-host, said in the same "ETF Edge" interview.

His firm runs the O'Shares Global Internet Giants ETF (OGIG), up nearly 75% year to date with a 300% increase in its shares outstanding. OGIG's top five holdings are Amazon, Alibaba, Tencent, Alphabet and Facebook, and its country exposure is largely concentrated in the U.S., China and Europe.

"The world is changing. It's doing a digital pivot," O'Leary said. "Of course it's Covid-related, but for the first time, a whole new generation of people are going online and buying goods and services direct from the various businesses they get it from. You saw it in Nike['s] numbers."

"What OGIG tries to do is find the 70 or 80 companies around the world that are the giants that are leading this trend, and I don't think we're even in the third inning yet because the pandemic is just one attribute," O'Leary said. "It's not about staying at home and working. It's working from anywhere and buying anything from anywhere delivered anytime. And so, that is really the engine of what has made OGIG so successful and I think we're just at the beginning."

O'Leary deemed another of his firm's funds relatively "safe" for this often difficult-to-navigate market: the O'Shares U.S. Quality Dividend ETF (OUSA).

Now 5 years old with more than $530 million in assets under management, OUSA has outperformed its large-cap value-based benchmark by 500 basis points per year, O'Leary said.

OUSA's top five holdings are Home Depot, Microsoft, Johnson & Johnson, Procter & Gamble and Merck. It is practically flat year to date.

"It's a dividend strategy, but a quality dividend strategy," O'Leary said, adding that his firm looks closely at things such as "the quality of the balance sheet, the return on assets, sustainability of the business model, the free cash flow, how much debt does the company have?"

"If you looked at the S&P 500, there's many sectors and many companies I wouldn't want to own — for example, some of the energy stocks, which have 8, 9, 10% dividends," he said. "I don't think those dividends are safe and they are certainly not in OUSA. We've made sure that it's just quality. So, it's a subset of the S&P 500, about 100 stocks that we feel are safe to own during these really volatile times."

OGIG was up nearly 1% in early Tuesday trading. OUSA was down less than half of 1%.

Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank," which features Kevin O'Leary as a panelist.