Betashares Best & Worst – February 2024

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Welcome to Betashares Best & Worst of February 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.

Equity markets enjoyed a strong month in February, continuing to be pulled upwards by a flying US tech sector.  On a macro level the economic data was tilted to the positive, continuing to support the growing ‘soft landing’ narrative, with US GDP growth for Q4 2023 coming out at a 3.2% annual rate, unemployment holding steady at 3.7% and corporate earnings generally coming in strong. The major downside risk continues to come from inflation, which printed slightly higher in January and has generated some concern that current equity valuations are pricing in imminent rate cuts that may end up being pushed back¹.

In markets outside the US, the ASX 200 had a subdued month as falling equity yields and sustained high bond yields have led to further declines in the equity risk premium, despite a positive earnings outlook and relatively attractive valuations². Japan continued to rally, reaching all time highs after a 34-year drawdown, while Europe saw moderate gains and Chinese equities rebounded after strong tourist numbers over the Lunar New Year holiday period surpassed pre-Covid levels³.

Much of the attention has been focused on the US in recent months, so for this month’s spotlight section I’ll delve a bit deeper into 3 Betashares funds which offer investors exposure to international equity markets outside the US, namely Japan, India and Europe.

Source: Morningstar, Bloomberg. As at 29 February 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Spotlight:

• Betashares Japan ETF – Currency Hedged (ASX: HJPN): Japan has proved to be a stealth performer over the last year, which culminated in February with the Nikkei 225 reaching a new all-time high. The last time the index was at a peak was in 1989, right before the asset price bubble burst that saw the economy enter the ‘lost decades’ that have lasted almost ever since. However, Japan has recently enjoyed economic tailwinds that have allowed its equity market to outperform many global peers, and is now looking well-positioned for the future. Japan has been one of the major beneficiaries of both the geopolitical tension between China and the west, as well as the economic struggles of the world’s second largest economy. ‘Friendshoring’ is seeing Japan turn into the go-to jurisdiction for the relocation of supply chains, especially for national security sensitive industries such as semiconductors⁴. Meanwhile on a macro level, Japan’s inflation has stayed much lower than most large economies, which has allowed the Bank of Japan to maintain very accommodative monetary policy. This has kept the Yen relatively weak, which has had dual benefits for HJPN. As HJPN’s index is focused on exporters, a weak yen helps them by making them more price competitive, while the currency hedging overlay has helped the index to materially outperform its unhedged peers in AUD terms. Additionally, low Japanese interest rates allow the hedged index to enjoy a carry benefit that is currently adding ~5.1% p.a. for Australian investors⁵.
• Betashares India Quality ETF (ASX: IIND): India is another market that investors are increasingly turning to, after being out of the spotlight for a period. The country is increasingly becoming the “anointed darling” of the emerging markets universe, as a combination of geopolitical positioning, demographics and domestic policy help it to gather momentum. The market is another one that has benefitted from China’s struggles, as India has positioned itself as the natural successor to China’s decades long claim as the world’s manufacturing hub. The country’s demographics are certainly supportive towards this goal, with a young, tech-savvy workforce with growing access to the internet, per capita GDP less than a fifth of China’s based on the most recent data⁶ and a rising middle class. Combined with 10 years of government reform under prime minister Modi and significant government expenditure, the formula seems to be working with the country recording a blistering GDP growth rate of 8.4% in the fourth quarter of 2023. Investors have started to notice, with inflows into India focused ETFs coming in at a record-breaking USD $8.6 billion in 2023, with bullish analysts predicting that the stock market will be the third largest in the world by the end of the decade⁷. The economy wide nature of these tailwinds have allowed IIND to enjoy broad based gains, with every sector within the fund seeing double digit gains as the fund returned 29% in the 12 months to the end of February 2024.
• Betashares Europe ETF – Currency Hedged (ASX: HEUR):  Despite being a region that is often overlooked by Australian investors, Europe, and particularly the exposure offered by HEUR, presents attractive diversification and promising fundamentals. Like HJPN, HEUR’s exporter focused index requires constituents to generate at least 50% of their revenue from foreign sources (with a 45% buffer for current holdings).  This results in a mix of sectors that are not well represented in the Australian market, with more than 50% of the fund comprised of Consumer Discretionary, Industrials and Information Technology stocks. As well, Europe is geographically diverse, which has allowed respectable returns from powerhouses Germany and France to be supported by strong performances from some smaller markets such as Spain, Italy and the Netherlands over 2023. Much of this performance has been attributed to optimism in the markets, after formerly downbeat forecasts of the effects of inflation and energy prices on growth proved to be overblown, with anticipation of possible rate cuts fuelling a late year rally⁸.

Source: Morningstar, Bloomberg. As at 29 February 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Best:

• Betashares Crypto Innovators ETF (ASX: CRYP): After months of steady gains, crypto roared back into the conversation in February as bitcoin jumped over 40% following the long-awaited approval of spot bitcoin ETFs in the US. The coin soared to new heights in AUD in February, breaking through its September 2021 USD peak in early March. The gains were unsurprisingly widespread, with more than half of CRYP’s holdings posting double digit gains for the month and two stocks more than doubling. One of those was Microstrategy Inc, which gained 107.15% in the same month that it announced it had bought an additional 3000 bitcoin for a total USD$155m, solidifying its position as the largest corporate holder of the coin with total holdings of around USD$10bn⁹. Bitcoin miner Marathon Digital Holdings was the second largest contributor, adding 48.28% ahead of a strong earnings report, while Coinbase Global gained 61.17% after smashing analysts estimates for fourth quarter EPS. Coinbase is one of the big winners from the approval of spot bitcoin ETFs as it has been chosen to provide custody for 8 out of the 10 approved ETFs, which is expected to generate more than $25m in fees for the exchange¹⁰.
• Betashares S&P/ASX Australian Technology ETF (ASX: ATEC): The ASX tech sector was comfortably the best performing Australian sector for the month, far outpacing the 0.79% gain in the broader index. The gains can be partially attributed to the Australian sector following the US market, although the same factors of optimism around the possibility of falling rates and AI excitement were present in both countries. Particularly regarding AI, it was the Australian stocks that investors believe will be best able to leverage the technology that gained the most. Logistics software developer Wisetech Global (+29.44%) was the largest contributor for the fund after reporting an 8% increase in profits and a 32% revenue increase. In an interview after the results were released, the company’s CEO and founder Richard White struck a promising tone about the technology, saying that “AI is not going to eat you”, going on to state that the “doomerism” around AI is putting the brakes on progress and that we should be focusing on the productivity and value-adds that it could provide instead¹¹. Altium Ltd (+30.41%) was the second largest contributor after the board voted to accept an AUD$9.1b takeover offer from Tokyo-based Renesas Electronics¹², while NEXTDC Ltd (+25.89%) rose after posting strong half year results, beating revenue forecasts by 2.1%¹³. 
• Betashares Future of Payments ETF (ASX: IPAY): Payment processing firms have been beneficiaries of the surprising resilience in the economy, especially around the levels of consumer spending. Outside of the previously mentioned Coinbase, which was the largest contributor for the month, Amsterdam-based payment processor Adyen (+26.08%) was the second largest contributor to the fund’s performance after posting a 14% gain in earnings, which it attributed to its partnership with US based mobile payments group Cash App. This came after the stock lost a third of its value last August after a profit warning driven by increased competition from Stripe and Paypal¹⁴. Block Inc (+24.08%) also benefitted from strong results, raising its full year profit guidance by more than USD$200m. The result is predicated on a combination of consumer spending staying strong and its own cost cutting measures, which so far have included cutting jobs and reducing its real estate footprint¹⁵.

Source: Morningstar, Bloomberg. As at 29 February 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Worst:

• Betashares Global Uranium ETF (ASX: URNM): The uranium sector experienced a sharp pullback in February, after a blistering 6-month period that saw the fund return over 66%. The monthly losses were mainly due to the release of an update from Cameco Corp (-14.32%), one of the world’s largest miners and the 3^rd largest holding in the fund. Firstly, the firm announced EPS of US$0.21, which came in lower than analysts’ predictions. As well, production was lower than previous guidance and future production would continue to be impacted by supply issues. These reasons caused a portion of the stock’s immediate fall, but it’s likely that the majority of the sell-off in Cameco as well as other uranium miners was caused by the company’s announcement of significant expansion plans and increase in reserves at its Cigar Lake mine in Canada. Although this news sounds positive, the main takeaway for investors was that a widely predicted Uranium supply squeeze may not be quite as powerful as previously forecast. The immediate result was a 3.3% fall in the price of uranium and widespread losses among uranium miners, with Sprott Physical Uranium Trust (-11.60%) and Uranium Energy Corp (-13.91%) rounding out the top 3 detractors. On the positive side, the long-term structural trends that have supported uranium over the last year are still present, with uranium bulls arguing that February’s losses are just a temporary pullback in an overheated market rather than a turnaround¹⁶.
• Betashares Australian Resources Sector ETF (ASX: QRE): The resources sector had a difficult month in Australia, as the prices of some of our major mineral exports fell for varying reasons. The major culprit was iron ore, which dropped 11.6% over the month as China’s slumping property market and the continued lack of government stimulus caused increasing pessimism about the country’s future demand for the metal. As well, global EV manufacturers began to predict a slowing in demand growth for their vehicles, which hurt expectations of demand for battery metals such as lithium and nickel¹⁷. The latter is also suffering from an oversupply of “pig-iron” nickel coming out of Indonesia, which Australian producers with higher environmental standards are struggling to compete with¹⁸. BHP (-7.07%) led the losses after announcing that their own nickel operation was unlikely to be profitable until 2030¹⁹, while Fortescue (-9.61%) pulled back on the falling iron ore prices²⁰ and Woodside Energy (-6.33%) fell after announcing a 75% decrease in net profits thanks to lower oil prices in 2023²¹.
• Betashares Global Gold Miners ETF – Currency Hedged (ASX: MNRS): Although the price of gold in USD dipped but ended almost flat in February, gold miners saw widespread losses. Wheaton Precious Metals (-11.24%) was the largest detractor for the month, after a difficult year which saw its production weighted down by the stopping of production at multiple mines as well as a labour strike at Mexico’s largest gold mine²². SSR Mining (-54.06%) fell over 60% in a day after a large landslide occurred in its flagship Turkish gold mine, the second major incident which has caused a shutdown of the mine in two years²³. The world’s largest gold miner, Newmont Corp, lost 8.08% over the month after announcing plans to sell assets and cut its workforce in order to cut debt following its USD$17.4bn purchase of Newcrest, despite beating profit estimates²⁴.

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

*Excludes short and geared funds.**Annualised for funds with more than 1 year’s performance history.

1: ETF Trends
2: Betashares
3: ETF Trends
4: Financial Times
5: Betashares
6: The World Bank
7: Forbes
8: Morningstar
9: CryptoPotato
10: Betashares
11: Stockhead
12: Rask Media
13: Simply Wall St
14: Financial Times
15: Reuters
16: Market Index
17: Stockhead
18: AFR
19: ABC
20: Sydney Morning Herald
21: Livewire Markets
22: Forbes
23: Bloomberg
24: Reuters

Future results are inherently uncertain. This information may include opinions, views, estimates and other forward-looking statements which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements. To the extent permitted by law Betashares accepts no liability for any loss from reliance on this information.