Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
The Swiss army knife of investing
Thematic ETFs have been the ‘in’ thing for several years now, but particularly in 2022.
You can do just about anything with them. Looking for robotics exposure? Sure, buy the ROBO ETF. What about oil? No worries, the crude oil ETF, OOO. Get tactical on defence, invest in the latest tech or even profit when the market drops; there’s an ETF for it.
You can just about cover every thematic thinkable. It’s a bit like a Swiss army knife. Got a knife? Of course. Small tweezers? Sure. Corkscrew? No problem. What about scissors or a bottle opener? Yes, it’s all there. ETFs can do anything, a one-stop-shop Swiss army knife.
But you have to be careful, “A knife with too many blades will weigh down a soldier.” In other words, holding too many thematic exposures, or investing in the wrong themes, may magnify losses (and gains), in the short term, at least.
For this article, we’ve listed the top ten best and worst-performing ETFs of 2022 to date, to decipher some of the market’s hottest trends.
Best performing thematics
Six out of the ten ETFs listed in the above chart were resources-based. Resources investing covers companies that mine or collect raw materials as well as processing and distribution companies. A potential rise in demand, driven by a growing population or a rise in infrastructure spending or perhaps a disruption in supply, will help drive commodity prices higher. These ETFs have large allocations to the materials and precious metals sectors and are cyclical in nature.
1. Resources and Materials – The price of palladium and other metals are trading near record highs due to the trade and financial sanctions imposed on Russia. This has caused disruptions to the global supply of commodities are behind the massive price rises.
- ETF Securities Physical Palladium (ASX Code: ETPMPD) is up 30.3 per cent, year to date. The ETF offers low-cost access to physical palladium via the stock exchange and avoids the need for investors to personally store their own bullion. ETPMPD is backed by physically allocated palladium.
2. Energy
- BetaShares Crude Oil (ASX:OOO) – The price of oil, gold, palladium and other metals are trading at close to record highs on the back of the war in Ukraine. The trade and financial sanctions imposed on Russia is causing disruptions to global supply of oil. This has resulted in the massive rise in the oil price. Global oil prices have risen by more than 30 per cent since the war in Ukraine began. Russia accounts for about 10 per cent of the global supply of oil.
Worst-performing thematics
Growth stocks have underperformed value stocks since the start of the year amid concerns over rising inflation and interest rates. Seven out of ten worst performing ETFs were either growth or tech-focused and have underperformed year to date. Technology stocks are just out of favour, while energy, commodities and banks stocks are popular again. It all boils down to a rise in bond yields that is turning markets upside down this year.
- Cryptocurrency
Surprisingly, the worst-performing thematic ETF year to date was BetaShares Crypto Innovators (ASX:CRYP), which has lost 23.5 per cent. The price of Bitcoin has tumbled by roughly 20-40 per cent so far this year, falling as low as US$30k. When the US Fed raises interest rates, which it did by 25bps, it reduces demand for growth companies – like tech stocks and speculative risk assets like cryptocurrencies and Bitcoin.
- Tech companies
Most of the big US tech stocks have fallen from grace with Netflix, Amazon, Microsoft, and Alphabet all in the red. At present, there is a market rotation underway from growth to value. A lot of these tech stocks have been trading at very high valuations for quite a long time. Many of them are cashflow-negative and so they rely on their ability to raise capital quickly. This is what has fuelled this sell-off. The fact is that the days of easy money is over.
The BetaShares Australian Tech ETF (ASX:ATEC) was the worst-performing tech ETF, falling by 21.8 per cent. Cathie Wood’s ARKK ETF suffered its worst week, as two-thirds of its holdings fell to 52-week lows. Wood’s ETF is -36% YTD and is currently working towards its fifth straight downward month. Her ETF is down 36 per cent year-to-date, as 23 of its 35 holdings fell to 52-week trading lows. That’s two-thirds of its portfolio in the red. Ouch.
Below is a list of the 23 stocks Wood and ARKK hold that have plunged to 52-week lows this week:
(TDOC), (ROKU), (ZM), (COIN), (EXAS), (U), (TWLO), (PATH), (SPOT), (BEAM), (SHOP), (DKNG), (FATE), (PD), (TXG), (RBLX), (NVTA), (PACB), (VCYT), (SE), (DNA), (TWST), (TSP).
