Three investment themes for H2 2021 - BetaShares

Three investment themes for H2 2021

BY David Bassanese | 28 July 2021
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The first six months of 2021 has seen a maturing of the equity market recovery since the ‘COVID crash’ early last year and an associated rotation in popular investment themes. This note considers some potentially interesting investment themes for the remainder of the year.

Earnings bounce back could favour quality

With a maturing in the equity market rebound – with more of the upside now driven by earnings rather than valuations – the ‘quality’ factor could be returning as a rewarding investment theme.

The BetaShares Global Quality Leaders ETF (ASX Code: QLTY), and its currency-hedged equivalent, the BetaShares Global Quality Leaders ETF – Currency Hedged (ASX Code: HQLT), for example, invest in major global companies that rank highly in terms of specially selected ‘quality’ metrics such as return on equity, earnings stability and only moderate leverage. As seen in the chart below, these ‘quality’ companies enjoyed good relative performance in the years leading up to the COVID crisis, and also performed well by not falling as hard during last year’s downturn.

Quality companies then had a period of underperformance as sectors hardest hit by the COVID crash enjoyed the strongest early recovery. But in recent months, quality has displayed tentative signs of reassuming its outperformance trend. The chart below shows the performance of HQLT, which strips out the influence of currency movements.

BetaShares Global Quality Leaders ETF – Currency Hedged (ASX: HQLT)

Source: Bloomberg. Past performance is not indicative of future performance of the index or ETF. Index performance does not take into account ETF fees and costs. You cannot invest directly in an index. *MSCI All-Country World Return Index – local currency.

Easing inflation fears could favour technology/growth

Last year’s equity rebound was also associated with a major rotation from ‘growth’ stocks to ‘value’ stocks – the former being distinguished as having high price to earnings valuations relative to the latter. As evident in the chart below, growth – as proxied by the U.S. tech-heavy BetaShares NASDAQ 100 ETF – Currency Hedged (ASX Code: HNDQ) – had outperformed global markets for several years prior to the COVID crisis. The COVID lockdowns, moreover, only accelerated this outperformance due to the shift towards online activity (along with the collapse in commodity prices and interest rates).

With the recovery in commodity prices and interest rates over 2020 – which favoured value sectors such as energy and financials – HNDQ gave back some of its relative performance from mid-2020 to early 2021. Along with HQLTY, however, there are tentative signs of a bottoming in HNDQ’s underperformance, which in turn has coincided with a decline in long-term interest rates, some commodity prices, and an easing in U.S. inflation fears.

BetaShares NASDAQ 100 ETF – Currency Hedged (ASX: HNDQ)

Source: Bloomberg. Past performance is not indicative of future performance of the index or ETF. Index performance does not take into account ETF fees and costs. You cannot invest directly in an index. *MSCI All-Country World Return Index – local currency.

While U.S. inflation has clearly picked up this year, it’s so far been concentrated in a few areas and related to the rapid re-opening of the U.S. economy. Markets, and importantly the Federal Reserve, feel the lift in inflation will be transitory, and a sustained lift in inflation would first require a much tighter labour market which is still at least a year or so away.

Late COVID recovery through global income

One part of the market that was especially hard hit by COVID was usually defensive areas such as utilities, due to reduced demand. By focusing on high yielding companies, the BetaShares Global Income Leaders ETF (ASX Code: INCM) tends to have a higher exposure to defensive/value areas of the market such as utilities, consumer staples, and financials. As evident in the chart below, INCM has yet to recover much of its underperformance during the initial COVID crash last year (though it has still returned 20.7% over the year to end-June 20211).

As such, as the global economic recovery gains traction, especially with the rollout of vaccines, INCM offers a potentially interesting ‘late COVID recovery’ play to the extent is has diversified exposure across a range of sectors beyond technology (though tech still has a 6% weight) that have yet to recover their COVID-related underperformance.

BetaShares Global Income Leaders ETF (ASX: INCM)

Source: Bloomberg. Past performance is not indicative of future performance of the index or ETF. Index performance does not take into account ETF fees and costs. You cannot invest directly in an index. *MSCI All-Country World Return Index – $A terms.

With a current 12-month distribution yield of 3.1%2, INCM also offers a diversified source of income for investors beyond the Australian market.


1. Past performance is not indicative of future performance.
2. As at 30 June 2021. Yield is calculated by summing the prior 12-month per unit distributions divided by the closing NAV per unit at the end of the relevant period. Yield will vary and may be lower at time of investment. Past performance is not indicative of future performance.

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