ETFs to watch as market rallies on optimism of coronavirus spread slowing

The market is rallying for the second straight day as investors show optimism despite to coronavirus outbreak. Yahoo Finance's Seana Smith and WallachBeth Capital LLC Managing Director Andrew McOrmond discuss which ETFs are good plays amid volatility.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance. It's now time for ETF Report brought to you by Invesco. We have stocks rallying today for the second day in a row. All 11 S&P sectors are posting gains at this point. The Dow now up 355 points. It was up well over 900 points at the highs of the day.

For more on this, I want to bring in Andrew McGormond, a managing director at WallachBeth Capital. And Andrew, thanks for joining us this afternoon. There's lots to talk about here, but let's start with the volumes that we've seen in some of the big ETFs. Because they had declined significantly over the last couple of days. From your perspective, do you think things are starting to normalize a bit, at least in the ETF market?

ANDREW MCGORMOND: I do. We [INAUDIBLE] huge volumes, but spreads have come down. There were some dislocations. Obviously, we had when we were selling everything two weeks ago, you know, everything was being sold gold and fixed in, so we had some dislocations. But ETF really behaved like they were supposed to, volumes were accelerated.

And don't forget that in general, ETFs were designed as a tool for investors and insitutional investors to trade intraday versus the mutual fund where they had to wait. So that's good, and that's going to make increased volumes anyway. But we have seen it normalize.

SEANA SMITH: Andrew, it's interesting. When we take a look at the data out from FactSet on Friday, and they were saying that Vanguard pulled in 40 and 1/2 billion in the first three months of the year. And it's more than four times what its nearest competitor, BlackRock, pulled in. Why do you think investors have been favoring Vanguard at this time? What are they doing right?

ANDREW MCGORMOND: That's pretty simple. It's low cost. I will point out they're the lowest cost provider, in most cases. It has been a race to even lower management fees. Of course, the Vanguard funds are very passive, though. So you have to have a passive mindset. You can trade them, of course, intraday, but they're a passive vehicle, large indices represented.

SEANA SMITH: Andrew, what should investors do at this point? Because there's so much uncertainty out there. We were talking to Dory Wiley at the top of the show. And he was basically saying that so many things need to happen just in order to see this economy restart again, in order for many investors to get off of the sidelines. So what is something that investors can do at this point?

ANDREW MCGORMOND: I think you just look at yourself and your own risk profile. So as a firm, we cover large institutions, big insurance companies, state pensions endowments, as well as big RAs and strategists. Just like an individual investor, they have risk tolerances, they have different views of the market, and they sometimes have to put cash to work.

Of course, you know, if you do not have money to put to work right now, then you shouldn't be leveraging money. I wouldn't recommend that to put into the stock market. But it all depends on your profiles. And of course, we see ETFs and ETFs being used depending on what your view of the market is. But certainly, investing through all time is proven to be OK, so no different than any other period. If you have money to put to work, I think it's OK to put some money to work here, but just spacing it out.

SEANA SMITH: Well, what if you want to pick-- say if you want to be a little bit safe and pick sectors right now. So today we have all 11 of the S&P sectors are in the green. Energy, obviously, has been a huge laggard, but it's one of the biggest outperformers, at least today. Where are you seeing an opportunity there?

ANDREW MCGORMOND: So I think XLE still is. That's the select sector, SPDR sector. I would stick with that. And a good point about these sectors are, again, when you have something that is volatile-- so the energy stocks carry single stock risk, right? Many of the companies have leverage. Leverage is not doing well. That's why it was so beaten up.

So XLE, although up big in the last two days, if you look at it compared to, let's say, technology, which I would say is XLK, it's still pretty far down the scale of where it needs to come back. So we like XLE for the energy. XLK, however, though, if you believe that technology, which I think most people do, where it's going to kind of ride this out, right? They're not going to suffer the same unemployment numbers. China's getting back into production. Then XLK is a great sector ETF to represent that.

SEANA SMITH: All right, Andrew McGormond of WallachBeth Capital Managing Director, thanks so much for talking to us this afternoon.

ANDREW MCGORMOND: Yeah, thank you.