Dividend, thematic plays dominate ETF performance in 2020

In a world of new asset classes, automation and sustainable earnings, there’s no better way to diversify than through exchange-traded funds. ETFs come in different shapes and sizes, including shares or bonds, domestic or international, small-cap or large-cap, hedged or unhedged.

 ETFs are growing in popularity. According to Betashares, the Australian-listed ETF market hit $102.9 billion in May, up 80 per cent to an all-time high, breaking through the $100 billion milestone.

Here are the top five ETFs

­Stockspot has done all the hard work and have analysed the best performing ETFs in 2021 in terms of returns. Listed below are the top five ETFs in Australia (in reverse chronological order), and the reasons why they performed so well in the past year.  

As you can see, ETF Securities edged out K2 Asset Management by a whisker to take the top spot with its Battery Tech and Lithium ETF returning a whopping 96 per cent return for the year, edging K2 Asset Management’s Australian Small Cap Fund ETF’s 95 per cent. And it’s no surprise.

This year has been dubbed the “Year of Sustainability,” which began with surging growth for renewable energy-related companies after the previous year saw a series of environmental and health disasters.

The battery tech and lithium sectors have been of special importance given their significance in renewable power generation. Spurred on by Elon Musk and President Joe Biden, there is now an insatiable drive to “go green.”

This boosted the popularity of electric vehicles (EVs), in turn driving higher lithium carbonate prices. ETFS’ Battery Tech & Lithium ETF (ASX: ACDC) offers investors exposure to the energy storage and production megatrend, including companies involved in the supply chain and production for battery technology and lithium mining.

Here are the stocks held in the ETF.

In second spot was K2 Asset Management’s Australian Small Cap Fund, which returned 95 per cent for the year and managed to achieve superior returns by investing in mis-priced and unde-rvalued stocks. The best-performing holdings for the month of April were People Infrastructure (ASX: PPE) rising 20 per cent, Pendal Group (ASX: PDL) up 13 per cent, and Maas Group (ASX: MGH) up 22 per cent.

In third and fourth place were BetaShares’ S&P/ASX Australian Technology ETF (ASX: ATEC) and ETFS ‘FANG+ ETF (ASX: FANG), rising 81.6 per cent and 73 per cent respectively. FANG provides investors with a return tracking the performance of the NYSE FANG+â„¢ Index. The index focuses on companies representing high-growth technology or advanced technology-driven sectors on the major US stock exchanges.

As displayed in the table below, the portfolio carries mainly household names in the tech and tech-enabled space. Nvidia (NASDAQ: NVDA) continues to power ahead as its chips power a future of self-driving cars and cloud gaming during a semiconductor shortage; while the FANG stocks (Facebook, Amazon, Amazon, Netflix and Google (Alphabet) keep on giving.  

In fifth spot, newcomer eInvest Better Future Fund (ASX: IMPQ) generated a return of 70.9 per cent for the year. Launched in 2017, the fund is run by Perennial Value’s Damien Cottier, and achieved a remarkable performance thanks to its approach of investing in sustainable companies in the smaller cap space.

The fund  invests in Australian and New Zealand listed small and mid-cap stocks, but aims to achieve a return greater than the S&P/ASX Small Ordinaries Accumulation Index while sustainably contributing to society and the environment. IMPQ is the first active ESG small-caps ETF on the ASX and has up to 70 quality small-cap stocks. Positive contributors this month included EROAD (+29.3 per cent), Calix (+24.1 per cent), Next Science (+27.4 per cent) and City Chic (+17.6 per cent).

Here are the main holdings:

And there you have it. The top five ETFs for the year, all achieving a return above 70 per cent during what has been a volatile year fraught with natural disasters.

It should be noted however, that these five were the best performing ETFs for the year but their returns were largely driven through their exposure to prevalent themes such as lithium, technology and semiconductors.

There is no guarantee that these themes will continue through to next year. Investors need to keep this in mind when buying recent top-performing ETFs. As always, ETFs are the product of the companies that are held within them, hence they can be both undervalued and overvalued like any other asset. 

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.