Betashares best and worst – January 2024

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Welcome to the first Betashares Best & Worst of 2024, bringing you insights into our top and bottom performing funds for the month, as well as a spotlight on some funds with interesting recent performance stories.

2024 began right where 2023 left off, with equity performance being driven by the ‘Magnificent 7’ tech stocks. Interestingly, there was divergence between these stocks, with Nvidia posting the 2^nd best performance in the S&P 500 with a 24.2% return while Tesla was the single worst performer in the index, losing 24.6%. This continued a near yearlong trend in which the electric vehicle manufacturer has returned just 8.12%, while the other ‘Magnificent 6’ have returned 87.36% over the 12 months to 31 January¹.

Fixed income had a steady start to the year, with longer duration yields showing slight increases. US inflation and unemployment remained fairly stable, with markets and commentators forecasting interest rate cuts to begin in the latter half of the year.

Cryptocurrencies also began the year fairly flat, taking a breather after posting large gains in 2023. This was despite the much-anticipated approval of spot bitcoin ETFs in the US, which many commentators had forecast would result in large gains for the assets due to the increased ease of access that the ETF structure would provide to retail investors.

As a new year begins, many investors will be taking stock of their portfolios and planning asset allocation and strategy for the year ahead. For the spotlight section this month, we’ll dive into three core equity building blocks that investors can use as the base of a diversified portfolio.

Source: Morningstar, Bloomberg. As at 31 January 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Spotlight:

• Betashares Australia 200 ETF (ASX: A200): As the lowest cost Australian shares ETF in the world², A200 is an effective core building block for Australian investors. While the Australian market has lagged its US counterpart over the last couple of years, the combination of household name companies, attractive long term returns and high dividends relative to the rest of the world has ensured that Australian equities remain an important allocation in investor’s portfolios. As well, the unique benefit of franking credits enhances post-tax returns for Australian investors. Over the last 12 months, Commonwealth Bank (+11.67%) was the largest contributor to the fund’s return, as the bank posted a record $10.2 billion profit for FY23 on the back of increased net interest margins³. Fortescue Ltd was second largest contributor, gaining 46.09% thanks to increased iron ore prices, even as investors registered a strike against the company over its executive pay plans⁴.  James Hardie Industries (+85.09%) was the third largest contributor, after managing to grow its revenue and net profit despite challenging conditions for the global construction industry⁵.
• Betashares S&P 500 Equal Weight ETF (ASX: QUS): While most investors are familiar with the market cap weighted S&P 500, there has been increased interest in an equal weighted approach over the last year, thanks to the changes in the makeup of the market. As mentioned previously, 2023 saw strong performance in the S&P 500, driven largely by a small group of mega-cap tech stocks. This had the effect of increasing index concentration, or the proportion of the index that is comprised of the largest stocks. At the start of 2023, the largest 5 stocks in the S&P 500 had a combined weighting of 18.72% (including both classes of Alphabet stock). By the end of the year, that figure had increased to 24.27%⁶, higher than it has been in any other market cycle in history⁷. While this increase in concentration has led to strong returns for the market cap weighted index, many forecasters are looking towards the possibility of a reversion in concentration in the coming cycle. This could manifest as either a reversal in the large cap tech stocks, or as stronger returns by the remaining 495 stocks in the index. In either scenario, it is likely that an equal weighted strategy would outperform its market cap weighted counterpart thanks to the relatively higher weights of the smaller stocks and the lower weights of the larger ones.
• Betashares Global Sustainability Leaders ETF (ASX: ETHI): In the turbulent markets of the last couple of years, ethical investing seems to have taken a backseat in many investor’s minds, with a common assumption being that the peace of mind of ethical investments comes at a cost in the form of lower performance. However, the data since covid suggests that this is not always the case, as ETHI has managed to outperform the MSCI World Index over all trailing time periods going back 5 years (as shown in the table above). ETHI can be an effective core global equities building block in an investor’s portfolio, thanks to its methodology that requires a company both pass negative screens as well as being identified as a ‘Climate Leader’ to be included in the portfolio. On a sector level, ETHI’s one year outperformance against the MSCI World Index can be attributed to the fund’s overweight in the Information technology sector, particularly NVIDIA Corp (+235.78%). This was enough to offset the exclusion of 5 of the ‘Magnificent 7’, namely Microsoft, Alphabet, Meta, Amazon & Tesla. Meta and Tesla were excluded for controversies, while the other three do not qualify as ‘Climate Leaders’ based on their carbon emissions.

Source: Morningstar, Bloomberg. As at 31 January 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Best:

• Betashares Global Uranium ETF (ASX: URNM): It’s been a bumper year for uranium, as a combination of increased demand and stalling supply pushed the price of the metal to double over the last 12 months, with forecasters tipping further increases over the coming years⁸. The increased demand comes from a pledge by 22 countries in last year’s COP28 to triple nuclear production by 2050, as well as strong ambitions coming out of China. On the supply side, while some small projects are coming online, production is unlikely to match soaring demand, and may even fall in 2024. The gains have picked up pace since December when the world’s largest producer, Kazatomprom, warned it will face production issues through to 2025. In January the price of uranium gained more than 10%, leading to every stock in URNM’s index gaining for the month, with all but 4 experiencing double digit increases. Canadian producer Cameco Corp (+14.43%) was the largest contributor to the fund’s returns, with Sprott Physical Uranium Trust (+12.12%) and ASX listed Boss Energy (+38.21%) making up the top three.
• Betashares Japan ETF – Currency Hedged (ASX: HJPN): Japan was the best performing major equity market in January, driven by the Bank of Japan deciding to maintain its negative interest rate policy and USD$7.8 billion in net inflows from foreign investors. Analysts cited a corporate governance push as a driver of returns, thanks to increased behaviours such as buybacks, as well as the fact that Japanese equities appear to be valued cheaply compared to their international counterparts, with the MSCI Japan index reaching a 12 month forward P/E of 15.1, compared to 17.6 for the MSCI World and 20.3 for the MSCI United States⁹. In addition, the poor performance of the Chinese market appears to have helped Japan, with overseas funds taking US$2.1bn out of Chinese equities and putting US$2.9bn into Japan during the month. Toyota Corp (+15.30%) led the contributors for the month, with its chairman Akio Toyoda making the bold prediction that electric vehicles will reach a maximum of 30% market share in the future, with hybrids, hydrogen and traditional fuel vehicles making up the balance¹⁰. Mitsubishi UFJ Financial Group (+14.64%) saw gains in the lead up to an announcement that its Q3 profit had tripled from a year earlier¹¹, while Sony gained 9.10% to round out the top 3.
• Betashares Global Cybersecurity ETF (ASX: HACK): Cybersecurity stocks seemed to benefit from their exposure to AI in January, with the companies that have begun to deploy the technology seeing broad gains. CrowdStrike (+18.24%) was the leading contributor after Morgan Stanley increased its price target by almost 50% based on the company’s AI product lines and increased demand due to a rise in cyberattacks¹². Palo Alto gained 18.48% thanks to its own AI capabilities, while networking equipment and services provider Juniper Networks Inc shot up 29.39% after receiving a US$14bn all cash takeover offer from Hewlett-Packard, the latest move by the computing heavyweight to extend its AI capabilities¹³.

Source: Morningstar, Bloomberg. As at 31 January 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Worst:

• Betashares Crypto Innovators ETF (ASX: CRYP): Cryptocurrency stocks took a bruising in January, despite bitcoin ending the month nearly flat. After gaining 80% since early October in anticipation, approval of spot bitcoin ETFs in the US actually led to losses in the immediate aftermath, in a classic case of “buy the rumour, sell the news”. While investors being able to access bitcoin on a stock exchange via ETFs is expected to expand demand, their effects on cryptocurrency exchanges is more uncertain. The exchanges generate a significant portion of their revenue from the buying and selling of bitcoin, and so some investors are worried that ETFs will lead to lower volumes being traded on the exchanges¹⁴. The crypto exchange Marathon Digital (-22.10%) was the largest detractor for this reason, while Coinbase (-23.92%) saw losses despite being the custody partner for some of the biggest name bitcoin ETFs such as BlackRock and Franklin Templeton, as analysts predicted the increased custody revenue would struggle to cover the fall in transaction volumes¹⁵. Bitcoin miner Riot Platforms (-27.28%) rounded out the top 3 detractors for the month, seeing a 15% one day drop after the ETFs were approved, as the price of bitcoin fell.
• Betashares Solar ETF (ASX: TANN): Solar power stocks had a difficult year in 2023, and the start of 2024 didn’t bring any reprieve. The industry is still suffering the effects of increased interest rates hurting demand in both the retail and commercial solar spaces. The big news in January was the downgrade of solar producer SolarEdge Technologies from Equal Weight to Underweight by Barclays, which led to a 26.67% monthly loss for the stock, which then spilt over into other similar solar companies¹⁶. Sunrun (-23.87%) was the single largest detractor for the month after public documents showed it had laid off 280 employees across various locations in California amid the continuing lack of industry demand¹⁷, while Enphase Energy rounded out the top 3 after losing 18.67%.
• Betashares Climate Change Innovation ETF (ASX: ERTH): While losses in the solar energy sector hurt ERTH in January, the major contributors to the funds monthly performance were electric vehicle manufacturers. The industry is seeing widespread struggles in recent months, as a slowdown in the growth rate of demand puts pressure on previously sky-high valuations¹⁸. Tesla (-22.21%) was the largest detractor after continuing to face a barrage of negative news, ranging from price cuts for its vehicles in China and Europe to a dispute between Elon Musk and Tesla’s board over his stock award package, in which the CEO is asking for 25% voting control of the company¹⁹. Alongside Tesla, Chinese EV manufacturers were the largest contributors to the fund’s January losses. Li Auto (-25.71%) and Rivian Automotive (-32.65%) had the biggest effects, however Nio Inc (-36.05%), BYD Co (-16.19%) and XPeng Inc (-41.18%) were not far behind. A sputtering economic recovery in the country as well as ever increasing competition in the sector is causing downwards pressure on vehicle sales, and price cuts from Tesla and BYD are hitting the bottom line of the smaller manufacturers²⁰.

For trailing performance of all Betashares funds please see: Betashares Monthly Performance – January 2024

*Excludes short and geared funds.

**Annualised for funds with more than 1 year’s performance history.

1: YCharts

2: Betashares, Bloomberg

3: ABC

4: The Guardian

5: The Bull

6: Bloomberg

7: GSAM

8: AFR

9: Reuters

10: Bloomberg

11: Nasdaq

12: TradingView

13: Benzinga

14: FXStreet

15: CNBC

16: Barron’s

17: San Diego Tribune

18: Bloomberg

19: Bloomberg

20: Motley Fool

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