Industry Updates

Nvidia drives top-performing ETFs in Q1 as clean energy woes continue

SEMG and SMGB saw double-digit returns over the quarter

Lauren Gibbons

Nvidia building

Semiconductor ETFs topped the performance charts in the first quarter of 2024, with high weightings to the tech giant Nvidia driving the gains.

The chipmaker’s release of better-than-expected Q4 earnings in February sparked an uptick in semiconductor ETFs, with its revenues rising to $22.1bn in Q4 2023, $1.7bn ahead of expectations.

Taking the top spot for Q1 was the Amundi MSCI Semiconductors ESG Screened UCITS ETF (SEMG), returning 33.6% in the first quarter, according to data from justETF. SEMG was bolstered by its 31.9% weighting to Nvidia.

Following suit was the VanEck Semiconductor UCITS ETF (SMGB) returning 22.7% in the first quarter, holding a 9.8% weighting to the chipmaker.

Finally, the HSBC Nasdaq Global Semiconductor UCITS ETF (HNSS), with a 7.7% weighting, returned 20.1% in the first three months of the year.

Semiconductor ETFs have sustained their momentum into 2024 having been among the top-performing ETFs last year.

Nvidia has seen its shares quadruple in value since the launch of ChatGPT in November 2022, aiding the growth of ETFs with Nvidia weightings.

It saw a further boost in 2023 when its share price increased 35% after hitting a $1trn market cap in May of last year.

Japan shines

Currency-hedged Japanese equity ETFs also dominated in Q1 as the Federal Reserve announced it would not lower interest rates last month, with investors looking to capitalise on a weak yen.

Outperformance of Japan ETFs is further underpinned by the Nikkei 225 reaching new highs in Q1, as the index crossed the 40,000 mark for the first time in February.

Elsewhere, Japan equity ETFs have found themselves among the top Q1 performers, with the WisdomTree Japan Equity UCITS ETF (DXJ) returning 24% in the first quarter.

The Xtrackers MSCI Japan UCITS ETF 2D USD (XMUJ) and the iShares MSCI Japan USD Hedged UCITS ETF (IJPD) returned 20.1% and 20%, respectively.

Higher interest rates strengthening the US dollar versus the yen means that Japanese equity currency-hedged ETFs have outperformed as the dollar has risen.

Aneeka Gupta, director of macroeconomic research at WisdomTree, said: “There are a number of catalysts in place to fuel Japan’s equity market rally in 2024 which include increasing capital expenditure and higher wage growth, revamping the Nippon Individual Savings Account (NISA) and corporate Japan’s ongoing reform initiatives.

“Recent inflation data continues to slow as the prior high import costs work through the system amidst soft domestic demand.”

Clean energy’s struggle

While semiconductor and Japan ETFs continued to see stellar gains, the bleak narrative for clean energy ETFs has continued into 2024.

ETFs capturing the theme have struggled to make headway so far this year, with energy transition companies typically carrying large amounts of debt, in turn making them particularly sensitive to high-interest rates.

After a tough year for clean energy in 2023, the theme has yet to bounce back, even amid predictions of rate cuts from the Fed by year-end, albeit a lot slower than markets predicted three months ago.

Compounding ongoing challenges, a Trump victory in November might threaten Biden’s Inflation Reduction Act (IRA) which has seen $470bn of tax credits allocated to the roll-out of renewable energy utilities and energy storage in the US.

The Global X Hydrogen UCITS ETF (HYGG) returned -20.5% in the first three months of 2024, continuing to face hurdles after falling -36.6% in 2023.

Following closely behind was the First Trust Nasdaq Clean Edge Green Energy UCITS ETF (QCLN) which returned -17.5% over the quarter, while the Invesco Solar Energy UCITS ETF (RAYS) returned -15.3% in Q1.

QCLN and RAYS plummeted -33.2% and -41% in 2023, respectively.

While clean energy stocks continue to underperform, their fossil fuel counterparts have benefitted from oil supply crunches that have forced up prices this year, consistently outperforming the S&P 500 in Q1.

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