As many of you will remember when signing up for the Rosecut platform, there is a range of thematic ETF (exchange-traded fund) ideas to consider.
These are baskets of stocks (ETFs) that track an index built to reflect the performance of a certain theme.
A theme can be thought of as a high level idea about future trends, for example the emergence of technology or changes in demographics.
Rather than just holding a handful of single stocks and running the risk of something unexpected having a big impact on your concentrated mix of stocks – our platform uses ETFs so you gain diversified exposure to the theme or future trend that you are looking to profit from.
These thematic ETFs are held on a self-directed basis – meaning you make the buy and sell decisions rather than us.
We do not recommend which ones to buy or sell, but rather put together a broad list of potential themes to choose from.
Now 2020 is behind us, we can see a wide dispersion between the performance of different ETF themes.
As ever, please remember that past performance is no guide to future performance. This piece is simply meant to be a review of what’s been happening, not as a forecast of what might happen next.
The themes are generally seen as long-term trends by ourselves and clients, and not day trading ideas. In the same way, that a discretionary portfolio should be seen as something to hold for 3 years plus – so should a thematic ETF.
Before we dive into the numbers, just a few quick housekeeping points. Firstly, all numbers are from Financial Express Analytics, are net of fees and accurate to the end of December 2020. Secondly, and importantly, past performance is not a guide to future performance.
There was a clear winner in 2020 - clean energy.
It was not an easy ride. At one point in March, it was down 40% for the year. For those with memories long enough to remember the pre-2008 performance, this ETF still has a lot of recovering to do!
However, in 2020 some of the clean energy stocks held in this ETF have seen tremendous price appreciation.
Take the biggest holding in the ETF; ‘Plug Power’ a company that is working on hydrogen power cells, that started the year with a share price of $3.24. At the end of the year its share price stood at $33.91 – a rise of 947%.
Also in there are companies that produce wind turbines and solar energy systems such as 'Vestas Wind Systems' and 'First Solar' respectively.
With Joe Biden talking about a clean energy revolution and investing in excess of $400 billion in the area, this theme should stay in the headlines for some time.
In second place was Chinese equities
This may be a surprise for many, given China had the toughest lockdowns at the start of the crisis and it’s also seen as a market very exposed to global GDP growth and trade.
However, China’s strict lockdown measures brought the virus under control and from the middle of June the L&G MSCI China ETF has been performing very strongly as a result.
Cyber security claimed third spot, just ahead of the Automation & Robotics ETF.
If everyone is working from home, I guess they have to be safely working! With the reputational risk that could flow from a security breach demand has been high for the products and services the companies in this ETF provide.
Note: The L&G Europe Equity (Responsible Exclusions) ETF has only been running since the 16th of September 2019. Hence 5-year performance numbers are not available. Since inception to the end of December 2020 its performance is 9.3%.
There is a reason we suggest people concentrate on total return when investing (that is capital plus income return), instead of focusing on income.
The two ETFs that performed the worst are the ones that are most used by income investors. A lot of the companies that most consistently paid dividends (hence the ‘aristocrat’ bit in the name) are in the sectors that suffered the most this year.
Often the companies paying the biggest dividends are the ones with lower growth prospects – and the market has had a strong bias for growth stocks for most of this year. It’s only really from the 9thof November when the Pfizer vaccine results were announced that value stocks started to outperform growth stocks.
All themes - 2020 performance
For a complete list of how the full range of themes have performed, see the table below.
To give a longer time frame we also include the 5 year performance numbers, or the since inception numbers if the ETF has not been in existence for 5 years.
For those ETFs that have not been in existence for 5 years, the inception dates are follows:
> iShares Automation & Robotics: 12th September 2016
> iShares Electric Vehicles and Driving Technology UCITS ETF: 22th February 2019
> iShares Digital Security: 12th September 2018
> iShares MSCI World ESG Screened: 23rd October 2018
> iShares Ageing Population: 12th September 2016
> L&G Europe Equity (Responsible Exclusions): 16thSeptember 2019
Performance since the vaccine announcements
Now, for those that listen to our monthly podcast, you will be aware that we adjusted our discretionary portfolios in November as news of the vaccine results came out.
With the potential for Western economies to be exiting the lockdowns by the end of Q1 2021, the market can look ahead with renewed confidence to 2021. This means cyclical industries that are more exposed to economic growth could start to perform, a grouping that includes value stocks. If the performance of different sectors is impacted by the flow of investor funds, then this outperformance could come at the expense of sectors such as technology.
If this turns out to be an inflection point where some trends reverse, it’s worth considering the performance of the thematic ETFs since then.
The table below shows how the different ETFs have performed from the 9th of November to the end of December. We also include the full 12 month performance numbers for 2020 to give additional context.
It's noteworthy how the gold mining ETF and Chinese equities have gone from being top performers to bottom of the table.
Higher up the top of the table, listed private equity stocks have started to perform better.
Because of the short-term nature of this performance, it’s dangerous to draw too many conclusions just yet – but it’s something to be mindful of.
The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies.
Past performance is no guide to future performance.
Rosecut Advisors Limited (Company Number: 12504673) is an Appointed Representative of WealthKernel Limited which is authorised and regulated by the Financial Conduct Authority in the UK, FRN 723719. WealthKernel is registered in England and Wales registration number 09686970, authorised and regulated by the Financial Conduct Authority.