Industry Updates

Thematics dominate worst performing ETFs in Q2

Crypto equity ETFs lead the way in turbulent quarter

Theo Andrew

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Thematic strategies have dominated the worst-performing ETFs in Q2 2022 across several megatrends in another sign the shine may be waring off the product class.

It is the second consecutive quarter thematic ETFs have been among worst-performing products as spiralling inflation has led the Federal Reserve to hike rates, leaving the growthy end of the equity market – heavily associated with thematic stocks – more exposed.

Investors have also taken note. Thematic ETFs booked their worst quarter of flows in Q1 since 2019 while assets across thematic ETFs fell for the first time since peak COVID-19 volatility.

Leading the way are several digital assets and blockchain ETFs hit by the fall in bitcoin and other cryptocurrencies in recent weeks.

While bitcoin dropped 54% from 1 April to June 30 – from just over $46,000 to under $20,000 – the VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) fell 69.9% over the same period, followed closely by the Global X Blockchain UCITS ETF (BKCG) which posted returns of 69.6%.

Another crypto equity ETF, the ETC Group Digital Assets and Blockchain Equity UCITS ETF (KOIN) plummeted 64.3% over the same period.

Despite tracking different indices, all three ETFs have similar top 10 holdings and are heavily impacted heavily by the demise of Coinbase, which is down 78.3% so far this year, as at 6 July.

The cryptocurrency exchange platform, which cut nearly a fifth of its workforce last month, is a top holding in BKCG at 11.5% and accounts for 8.9% and 6.4% of KOIN and DAPP, respectively.

Another drag on the ETFs is digital payments company Block, formerly known as Square, the top holding in DAPP (11.4%) and KOIN (9.7%) is down 78.8% year-to-date.

Slightly further down the rankings, but still in the top 10 worst performing of Q2, was the Invesco CoinShares Global Blockchain UCITS ETF (BCHS) which returned -32.5%.

Tracking the CoinShares Blockchain Global Equity index, the ETF has a much lower allocation to Coinbase (2.5%) and Block (1.9%).

Other megatrends such as medical cannabis have also had a troubling quarter, with the Rize Medical Cannabis and Life Sciences UCITS ETF (FLWG) down 34.2% in Q2, followed by The Medical Cannabis and Wellness UCITS ETF (CBDP) which returned -32.7%.

Internet and cloud computing ETFs were also among the worst performing. The FMQQ Next Frontier Internet & Ecommerce ESG-S UCITS ETF (FMQQ) was down 30.5%, the First Trust Dow Jones Internet UCITS ETF (FDN) down 27.6% while the WisdomTree Cloud Computing UCITS ETF (KLWD) returned -26.8%.

Elsewhere, commodity mining ETFs also took a hit after the recent boom on the back of post-pandemic government stimulus has started to fade, with the industry facing the scenario of falling commodity prices and rising production costs.

Leading the way is the L&G Gold Mining UCITS ETF (AUCP) leading the way having returned -27.9% in Q2. This was followed by the Global X Copper Miners UCITS ETF (COPG) -26.4%, the VanEck Junior Gold Miners UCITS ETF (GJGB) -25.9% and the AuAg ESG Gold Mining UCITS ETF (ESPG) -23.7%.

Other notable poor performers were the Global Online Retail UCITS ETF (PBUY) which dropped 40.6% while the Global X Hydrogen UCITS ETF (HYGG) and the Global X Fintech UCITS ETF (FINX) were down 30.1% and 29.2%.

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