Best and Worst Performing Thematic ETFs

Exchange-traded funds focused on cloud computing, gaming and healthcare have prospered this year, while those linked to the physical economy have struggled

Kenneth Lamont 18 May, 2020 | 11:15AM
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Laboratory work

Some of the biggest winners in the Covid-19 market turmoil have been thematic ETFs, with those tracking technological themes profiting most as broad markets have tumbled.

While the MSCI World Index remains 12% down since the beginning of the year, funds like the WisdomTree Cloud Computing ETF (WCLD) are up 34%. With its focus on cloud commuting services, this fund has been perfectly placed to benefit from the lockdown economy.

As retailers have rushed to set up or enhance their online solutions, funds holding e-commerce platforms such as Shopify (SHOP) have prospered. Another big winner held by the fund has been Zoom Video Communications (ZM), which has profited from the global spike in remote working.

Elsewhere the Van Eck Vectors™ Video Gaming & eSports ETF [ESPO] is up 25% year to date. Amongst its top holdings gaming giants Tencent (00700) and Activision Blizzard (ATVI), which have been buoyed as the demand for home entertainment has surged.

Up 18% since the turn of the year, the L&G Pharma Breakthrough ETF [BIOT] has also gained from crisis. ETFs largest holdings include regenerative medicine firm Mesoblast (MSB) and vaccine maker Emergent BioSolutions (EBS), which have each become involved in the scramble for a Covid-19 vaccine.

Best Performing ETFs

Cars, Cruises and Farms

Not all thematic ETFs have performed so well. Those such as the iShares Agribusiness ETF [ISAG] and the iShares Global Timber & Forestry ETF [WOOD] have both lagged the MSCI World index. As global demand forecasts have been downgraded, those firms operating in the agriculture and forestry sectors have suffered.

Morbidly, another loser is the iShares Ageing Population ETF [AGED] which is down 13% this year. Particularly hard hit have been those holdings with a travel focus, such as Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean Cruises (RCL). While UK-based Saga (SAGA) has lost more than two-thirds of its value over the period.

But not all technology focused thematic have prospered. The global shut-in has also seen the Xtrackers Future Mobility ETF [XMOV] lag the MSCI World Index. The primary culprits here are a string of global automotive players, such as Ford (F), General Motors (GM), BMW (BMW) and Renault (RNO) held by the fund. Automotive stocks have taken a hit as global car demand forecasts have nosedived.

Worst Performing ETFs

Diversification Benefits

While some thematic ETFs have prospered in the current crisis and others have not, they have all demonstrated different risk and return drivers from both the wider market and each other.

This allows them to be deployed tactically to make bets on short term trends. However, investors have repeatedly shown themselves to be poor market timers, leading to poor investment outcomes.

We think these funds are best deployed as long-term holdings within a broader portfolio. Not only might they profit from long-term structural trends, but their distinct risk and return characteristics may bring welcome diversification benefits within your portfolio.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Kenneth Lamont  is a passive funds research analyst for Morningstar Europe.