Betashares Best & Worst – March 2024

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Welcome to Betashares Best & Worst for March 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.

March was another strong month for equity markets, with performance being driven not just by big tech but the broader market as well. The S&P 500, Nasdaq 100 and S&P/ASX 200 all reached record highs as optimism grew that the Fed would deliver a soft landing without tipping the US economy into recession, while still being expected to cut rates multiple times by the end of the year. The optimism around economic growth fuelled a rally in commodity related sectors, with the big winners being materials, energy and crypto. Economic indicators continued to come through looking robust, with general indicator of the US economy, the February Leading Economic Index, coming through positive for the first time since February 2022¹.

Aside from speculation surrounding the Fed’s future interest rate moves, the biggest macroeconomic story of the month was the Bank of Japan raising interest rates into positive territory for the first time in 8 years, ending the last of the post-GFC negative interest rate regimes. On the other end of the spectrum, the Swiss National Bank became the first major central bank to begin cutting rates this cycle, lowering its main interest rate by 25bps to 1.50%².

The broad Australian equity market has lagged some of its global peers over the last year, thanks to our overweight to materials and financials and lack of exposure to tech, particularly AI. However, that doesn’t mean that there haven’t been returns to be found in Australia, so for this month’s spotlight section I’ve focused on 3 different ways investors can gain access to Australian equities beyond a vanilla broad market exposure.

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

Spotlight:

• Betashares Australian Quality ETF (ASX: AQLT): Investing in the quality factor has been a popular way for global equity investors to seek returns for some time, however in Australia it has struggled to gain as much traction, with our domestic market dominated by large cap cyclical exposures. This tilt has the result that an uncustomised quality index in Australia is likely to exhibit a strong small-cap bias, and will likely suffer significant return deviations from a broad Australian benchmark. AQLT’s index attempts to remedy this, by including the highest quality companies from each of a large cap and a mid-small cap group, represented by the top 50% and bottom 50% of the Solactive Australia 200 Index by market cap, respectively. This is designed to make AQLT more size aware to the broader market, with the intention of creating a balanced portfolio³ with the aim of generating long term returns higher than the S&P/ASX 200.  AQLT has achieved this aim so far, generating returns above the S&P/ASX 200 over all trailing periods back to the fund’s inception almost two years ago. Over the 12 months to the end of March, AQLT’s outperformance was largely driven by its overweight to a range of mid-cap Materials, IT and Healthcare stock such as Pro Medicus Ltd (+63.10%), CSR Ltd (+98.12%) and Altium Ltd (+73.10%), all of which have had consistently higher return on equity than the ASX 200 since the fund was launched.

• Betashares S&P/ASX Australian Technology ETF (ASX: ATEC): Although not quite keeping up with its US counterpart (as measured by the Nasdaq 100 Index in AUD), ATEC’s returns over the 12 months to the end of March have shown that Australian investors don’t just have to look overseas for the technology allocation in their portfolios. The Australian tech sector has successfully ridden the AI-fuelled wave that has driven its US counterpart to new heights over the last year, but it would be a mistake to assume it’s just been taken along for the ride. The companies that make up ATEC have their own AI credentials that have piqued the interest of domestic investors, as well as presenting a distinct profile that differentiates them from their US counterparts. While the US tech sector is dominated by consumer-focused internet giants, the companies in ATEC tend to have more of a B2B focus, which has allowed them to enjoy the sticky revenue that comes with corporate contracts, and arguably the faster monetisation of new AI technologies⁴. A compelling example of this is Xero Ltd, which has been steadily rolling out AI powered product enhancements since August 2023⁵, and enjoyed a 49.09% return in the 12 months to the end of March 2024.

• Betashares Australian Sustainability Leaders ETF (ASX: FAIR): While a difficult 2022 may have hurt some investor’s enthusiasm for ethical Australian equities, FAIR’s outperformance against the ASX 200 over the last 12 months warrants re-examination for any ethically-minded investors looking beyond passive, market cap weighted exposures. The period can broadly be split into 3 sections. From the end of March 2023 until the end of August that year, FAIR returned 6.98% compared to 3.08% for the ASX 200, much of it thanks to overweights in software companies such as Altium and NextDC, as well as lithium miners such as Pilbara Minerals and Allkem as the price of lithium rebounded somewhat from its late 2022/early 2023 crash. In September and October of 2023, FAIR underperformed the ASX 200 by 4.79%, with overweights in poorly performing REITs such as Mirvac Group the primary culprit. Finally, from November 2023 to the end of March 2024 FAIR has been on a roll, returning 24.21% to the ASX 200’s 18.76%, outperformance of 5.45%. The main causes of this were FAIR’s overweight to the IT sector and underweight to materials, as major miners such as BHP struggled.

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

Best:

• Betashares Global Gold Miners ETF – Currency Hedged  (ASX: MNRS): Gold flew upwards in March, spending much of the month breaking new heights and finishing at around US$2230/oz, up over 9%. While this would be enough to charter attention by itself, the most interesting part of this is that the reason for the move has been largely a mystery. On a macro level, real yields and the US dollar have been rising, with inflation proving stubborn and interest rates cuts getting continually pushed back, which would all usually put downwards pressure on the price of gold. To add to this, gold ETFs have been seeing outflows globally, so the buying isn’t coming from there. The best guess that experts have been putting forward is that much of the buying has been coming from China, between a mix of the central bank, smaller government owned banks, and individuals turning to the asset as an investment and store of value in the midst of a prolonged housing and equities slump. Wherever the buying has been coming from, it’s been good news for gold miners. The last three years have been difficult for the industry, as high interest rates increased interest costs for the capital-intensive firms. However, with the rate hiking cycle over it appears the remaining firms have come through stronger and more resilient⁶. Unsurprisingly, the biggest contributors to the fund’s monthly performance were all large gold miners, although in the whole fund all but one stock ended up positive. Agnico Eagle Mines led the contributions with a 24.08% gain, trailed by Franco-Nevada Corp (+13.94%) and Newmont Corp (+15.37%).

• Betashares Crypto Innovators ETF (ASX: CRYP): The crypto market maintained its upwards momentum in March, with total industry capitalisation increasing 16.3% and bitcoin gaining 13.9% in USD. This allowed it to reach an all-time high of more than USD$73,000 mid-month, before a sharp retracement and then partial recovery to end the month just above USD$70,000. This was despite inflows slowing into spot US Bitcoin ETFs, which have now captured over $12 billion in inflows since their launches in January. All eyes are turned towards the bitcoin halving, expected to occur on April 20^th, where the rewards for bitcoin miners will be halved. Historically, bitcoin has always risen after a halving, although it’s impossible to know how much of that has already been priced in by the recent gains, which is likely contributing to volatility in the runup to the event⁷.^ On a stock level Microstrategy (+66.39%) was by far the largest contributor to the fund’s performance after announcing further bitcoin purchases that bring its total holdings to more than 1% of the total amount of the coin that will ever exist⁸. Coinbase Global (+30.24%) and Cleanspark (+26.85%) rounded out the top three contributors for the month.

• Betashares Energy Transition Metals ETF (ASX: XMET): Copper miners were the main drivers of XMET’s March performance, with multiple large miners enjoying double digit gains as the price of the metal climbed 5.5%. The primary cause of the increases was a pledge from Chinese smelters to cut output by 5-10%, as overcapacity began to cause problems after years of expansion and a supply squeeze on copper concentrate, a form of ore that is a smelting input⁹. As well, global consumption has been stronger than expected as manufacturing begins to pick back up. Southern Copper Corp (+31.53%) was the largest contributor, followed by Lundin Mining Corp (+29.16%) and Freeport-McMoRan Inc (+24.17%).

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

Worst:

• Betashares Global Cybersecurity ETF (ASX: HACK): The performance of the stocks in HACK were widely dispersed in March, with a few larger companies’ losses leading to the fund’s performance rather than industry-wide struggles. This dispersion has been a consistent theme recently, as competing forces push the industry in different directions. Persistent inflation and high interest rates have put pressure on firms’ margins across the economy, making it harder for executives to justify cybersecurity spending. On the other hand, the rise of AI has created a new (and potentially very lucrative) arms race between cybersecurity firms and those they’re trying to stop, with investors rewarding those firms that have been the best early adopters of the technology¹⁰. Cybersecurity software maker SentinalOne led the losses, falling 17.38% over the month after the firm issued a soft full year sales outlook, citing that “customers are continuing to monitor their spending in the current macroeconomic conditions.¹¹”. Zscaler Inc (-20.51%) and Infosys (-10.31%) rounded out the top 3 detractors after also struggling with sluggish demand.

• Betashares Cloud Computing ETF (ASX: CLDD): CLDD had a similar month to HACK, with losses marginally outweighing gains in a dispersed portfolio. Zscaler was the largest detractor for the month, followed by Indian software company Freshworks (-11.05%) and US-based Workday Inc (-7.58%), which recently announced the roll-out of its payroll software into the Australian market¹². On the other end of the spectrum, critical event management software company Everbridge gained 23% after announcing it would go private in a $1.8 billion deal that will see it be taken over by private equity giant Thoma Bravo¹³.   

• Betashares India Quality ETF (ASX: IIND): After a very strong 12 months, India stocks experienced a pullback in March led by the software industry. Infosys was the main detractor for the month, followed by Tata Consultancy (-5.99%), which dropped after its largest shareholder proposed a share sale worth more than US$1 billion at a discount rate of 3.7%¹⁴. Final good giant Hindustan Unilever rounded out the top 3 detractors, falling 6.77% and extending its 2024 losing streak to 15.00%.

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

*Excludes short and geared funds.**Annualised for funds with more than 1 year’s performance history.^Note: CRYP does not invest in crypto assets directly, and does not track price movements of any crypto assets.

1: Raymond James
2: Reuters
3: Betashares
4: Indian Express
5: Smart Company
6: Betashares
7: Binance
8: Bloomberg
9: Mining.com
10: Yahoo Finance
11: Investopedia
12: ITBrief
13: Tech Crunch
14: Reuters