Thematic ETFs Growth Set to Continue in 2021
Fund Launches and Updates
The Zimbabwe Stock Exchange (ZSE) announced the Old Mutual Zimbabwe ZSE Top 10 Exchange Traded Fund (ETF) has listed on the bourse’s main board. The diversified financial services group, with interests in banking insurance and property sectors, earlier indicated it will provide initial seed capital for the newly introduced publicly traded security. Link
In the U.S., more than 300 new ETFs started trading in 2020, bolstered by a streamlined approval process for new offerings known as the ETF rule. That’s the most ever, and a huge leap from the 257 that debuted in 2019. Last year’s top 20 alone gathered almost $10 billion. Bloomberg Link
Research conducted by Cerulli Associates finds that thematic ETFs enjoyed a boom over 2020 and their popularity is set to continue over 2021. Net flows into sector-themed equity products during the first 10 months of 2020 amounted to EUR89 billion, more than triple the net sales for 2019. Assets under management amounted to EUR512.4 billion at the close of October 2020.
Research also shows that demand for funds with themes focused on water, biotechnology, and technology is likely to increase over the next 12 to 24 months. Link
Investors added the largest sum ever to ETFs during 2020 — $507.4 billion flowed into U.S.-listed ETFs during the year, topping the previous record of $476.1 billion from 2017. Annual inflows for 2020 were also 55% greater than the $326.3 billion registered in 2019. Link
Investment platform, Interactive Investor, reported that the most bought ETF on interactive investor in December 2020 was the iShares Global Clean Energy ETF (LSE:INRG). Not surprising given the craze for ESG funds last year, the iShares Global Clean Energy was one of the best-performing ETFs of 2020, with its one-year performance currently sitting at 127.3%, as of 4 January. Link The top purchased ETFs in December 2020 below:
According to a recent report by EY, ETF issuers must adapt their plans to the post-pandemic environment if they want to achieve sustainable growth. This can be achieved through four areas over the next five years: navigating regulation, getting ESG investing right, rethinking investor experiences and transforming business models with technology and data. Link
VanEck Associates Corp. has started a new push to launch an ETF tracking the world’s largest digital currency, according to a filing Wednesday to the U.S. Securities and Exchange Commission. The VanEck Bitcoin Trust would reflect the performance of the MVIS CryptoCompare Bitcoin Benchmark Rate. There have been multiple applications for crypto-tracking ETFs over the years, and the SEC has denied them all. Link
London’s financial sector started to feel the full effects of Brexit on the first trading day of 2021 as nearly €6bn of EU share dealing shifted away from the City to facilities in European capitals. Trading in equities such as Santander, Deutsche Bank and Total moved to EU marketplaces or back to primary exchanges such as the Madrid, Frankfurt and Paris bourses, according to data from Refinitiv — an abrupt change for investors in London who have grown accustomed to trading shares in Europe across borders without restrictions. FT Link
While the asset management industry has been watching and waiting for a mutual fund to become an ETF for the first time, it turns out history was being made with a conversion of another kind. A tiny U.S. hedge fund has just become the first to convert into an exchange-traded fund.
The actively managed Upholdings Compound Kings ETF (ticker KNGS) began trading last week. It’s a new wrapper for a tech-heavy portfolio that was started in March 2019 by Nashville, Tennessee-based Upholdings Funds LLC. Bloomberg Link
Only 91 new ETFs had been rolled out in China in 2020, a number that only just exceeds the 90 such product launches recorded for 2019, data provided by Morningstar show. Total assets in the onshore ETF market stood at Rmb1.06tn ($162bn). FT Link
MSCI will drop three Chinese state-owned telecoms companies from closely followed stock benchmarks as it rushes to comply with a Trump administration executive order barring investment in companies with alleged links to China’s military. Shares of China Mobile, China Telecom and China Unicom traded in Hong Kong will be removed from many of the company’s indices, including the MSCI China All Shares and All Country World benchmarks, at the close of trading on Friday. FT Link
Concerns about limited uptake by distributors of non-transparent exchange traded funds in the near term drove AdvisorShares to change its mind about using the structure for two recently launched ETFs. AdvisorShares, an active ETF specialist, launched the Q Dynamic Growth and Q Portfolio Blended Allocation ETFs at the end of December. The products had received the green light to use Precidian Investments’ ActiveShares methodology that allows active non-transparent ETFs to skirt daily full portfolio disclosure requirements. However, instead the ETFs launched as fully transparent active ETFs. The company switched its plans because broker-dealer due-diligence policies and procedures were not quite ready to accommodate active non-transparent ETFs, said Noah Hamman, chief executive of AdvisorShares. FT Link
Fund in Focus
Last week, the FT reported that Donald Trump moved to ban transactions with Chinese payment applications including Alipay, WeChat Pay and Tencent’s QQ Wallet, stoking tensions with China with just days remaining in his presidency. The executive order is the latest in a series of late moves by the Trump administration to crack down on Beijing before Joe Biden is inaugurated on January 20. FT Link Whether the bans under Biden stay intact is an open question and prompted us to look at how headline news has impacted this week’s fund in focus, the KraneShares CSI China Internet UCITS ETF (KWEB). KWEB Fact Sheet
KWEB seeks to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors. Launched in November 2018, KWEB has over $303 million in assets under management, TER is 0.75% and is listed on the LSE, AEX, and ISE.
As of the most recent reported holdings, KWEB has holdings in Alibaba and Tencent but given its annual return in 2020 of over 59%, it doesn’t seem that Trump’s headline news has made an impact so far.