Industry Updates

Best and worst performing ETFs in a turbulent Q1

Commodities rule as thematic ETFs feel the pinch

Theo Andrew

Commodities table

Russia’s invasion of Ukraine dominated Q1 2022 and sent markets into a spin as investors attempted to make sense of the impact the conflict and subsequent financial sanctions imposed on Russia by the west will have on their assets.

Unsurprisingly, energy and commodity ETFs have been among the best performing over Q1. The conflict has highlighted the west’s reliance on Russia’s oil and gas resources with the price of Brent Crude oil surging to over $127 a barrel in early March.

Other areas of the global commodity market have also been rocked by the invasion, resulting in previously unloved areas of emerging markets coming back in vogue.

Nickel prices more than tripled in the week to 8 March, from $29,000 a ton to over $100,000 a ton forcing the London Metal Exchange to shut down the market for a week.

Wheat futures also skyrocketed in the first couple of weeks of the war, with front-month contracts hitting as high as $13.5 a bushel, 6% higher than the previous record set during the Global Financial Crisis in 2008.

However, before Russian troops entered Ukraine at the end of February, it is easy to forget that the year began on shaky ground. In the first 16 days of January, the S&P 500 fell by 11% and was dubbed the worst ever start to a year in history by Bloomberg.

Inflation has been front and centre of investors' minds since last year and expectations that the Federal Reserve will hike rates on several occasions throughout 2022 has hit growth areas of the market, with tech focused thematic funds some of the worst performing in Q1.

Brazil rides commodities wave…

Dominating the performance charts for the first quarter are Brazil-focused ETFs with the country benefitting from the surge in commodity prices.

Furthermore, the country has been out of favour for some time, meaning investors have been attracted by cheap prices following two years of underperformance.

Leading the way are the Xtrackers MSCI Brazil UCITS ETF (XMBR) and the Amundi MSCI Brazil UCITS ETF (BZR) which both returned 48.9% over Q1.

This was closely followed by the Lyxor MSCI Brazil UCITS ETF (RIO) (48.6%), the Franklin FTSE Brazil UCITS ETF (FLXB) (48%) and the HSBC MSCI Brazil UCITS ETF (HBRL) (47.1%).

The iShares MSCI Brazil UCITS ETF (IBZL) was the worst performing country-specific ETF among the big issuers, returning 45.5% in the three months to the end of March.

Wider Latin America ETFs also posted strong performance off the back of the commodities wave, led by the Xtrackers MSCI EM Latin America ESG Swap UCITS ETF (XMLA), which returned 40.2%, followed by the iShares MSCI EM Latin America UCITS ETF (LTAM) and the Amundi ETF MSCI Emerging Markets Latin America UCITS ETF (ALAT) returning 36.6% and 36%, respectively.

… while metals shine

Topping the performance charts over Q1 is the GPF Physical Nickel ETC (TNIK) which returned an impressive 53.7%.

Ironically, TNIK is run by the Russian nickel and palladium mining company Norilsk Nickel which offers exposure to seven physically-backed metal ETCs. Last September the group launched a carbon neutral version of its TNIK, the GPF Physical Carbon Neutral Nickel ETC (NIC0).

Elsewhere, the Xtrackers Physical Rhodium ETC (XRH0) was also one of the top performers, returning 41.3% in the past three months. The rare platinum group metal can go for up to $20,000 an ounce and is often used in car catalytic converters to clean vehicle emissions.

Energy ETFs among strongest performers

Energy sector ETFs have also been strong performers as the Russia-Ukraine conflict tightens global supply.

The SPDR S&P US Energy Select Sector UCITS ETF (SXLE) and the iShares S&P 500 Energy Sector UCITS ETF (IUES) both returned 34.9% in the first three months of the year.

These were followed closely by the Xtrackers MSCI USA Energy UCITS ETF (XSEN) and the Invesco US Energy Sector UCITS ETF (XLES) which returned 34.6% and 34.5%, respectively.

Broad-focused commodity ETFs were among the strongest performers. Leading the charge was the Lyxor Bloomberg Equal Weight Commodity ex-Agriculture UCITS ETF (CRAL) returning 34%.

This was followed closely by the Xtrackers Bloomberg Commodity ex-Agriculture & Livestock Swap UCITS ETF (XBCU) (32.7%) and the L&G Multi-Strategy Enhanced Commodities UCITS ETF (ENCG) (30.8%).

Thematic ETFs underperform

While Russia-focused ETFs have been deemed almost worthless as they remain in limbo, it has also been a turbulent month for thematic ETFs as the Fed’s rate hike looms on the horizon.

Tail-ending the performance charts was the HANetf Global Online Retail UCITS ETF (IBUY) which returned -29.9% in Q1.

The KraneShares ICBCCS SSE Star Market 50 Index UCITS ETF (KSTR), which tracks the Shanghai Stock Exchange (SSE) Science and Technology Innovation Board 50 index, also had a poor quarter, returning -18.2%.

Automation and robotic ETFs had a tough quarter, with the Global X Robotics & Artificial Intelligence UCITS ETF (BOTZ) down 15.4%, followed by the iShares Automation & Robotics UCITS ETF (RBOT) with returns of -14.1%.

Inflationary fears have also been the catalyst behind a poor quarter for European consumer discretionary ETFs. Both the SPDR MSCI Europe Consumer Discretionary UCITS ETF (CDIS) and the iShares MSCI Europe Consumer Discretionary Sector UCITS ETF (ESIC) were among the worst performers, returning -15.7% and -15.4%, respectively.

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