ETF Wrap: 2021 Vision

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ETF Wrap: 2021 Vision


What just happened?

If ETF Wrap had a list of New Year’s resolutions, top among them would be to banish 2020isms like “unprecedented” and “pivot” from our vocabulary.

Also: no more cute names for market churn that ultimately goes nowhere. (Earlier in the fall, we compared it to cats watching Wimbledon, last week we called it “zigzagging,” the week before, “pingponging.”)

What we do pledge to do is continue bringing fresh content about ETFs: new launches, interesting strategies, industry profiles, and much more.

This will be the last Wrap of 2020 — a year that really will live in infamy.

Happy holidays, thanks for reading, and stay warm and healthy!

A 2021 forecast

Every year, portfolio strategist Astoria Advisors publishes a report on its picks for the top 10 ETFs for the coming year. Founder John Davi was also brave enough to share with MarketWatch a reminder of his report from last year: that is, the firm’s calls for 2020.

Even though the world went upside-down in 2020, some of Astoria’s calls made out well, such as the iShares MSCI China ETF
MCHI,
which has gained 24.5% in the year to date, and the VanEck Vectors Gold Miners ETF
GDX,
which is up 22.7%, as of Wednesday’s close. But there were some misses as well: the Invesco KBW Bank ETF
KBWB
is down 14.7%, and the SPDR S&P Emerging Markets Dividend ETF
EDIV
has lost 14.5%.

Yes, it was a tough year to forecast – but that’s the risk you take when you publish a forecast. And Davi is a big believer in strategic asset allocation, not high-frequency trading, as he told MarketWatch in October.

For 2021, Astoria is betting on commodity equity ETFs, healthcare, cyclical growth funds, clean energy, and more. The full report can be found here and several of the firm’s specific picks are below.

Theme

ETF

Commodity Equities

Global X Copper Miners ETF
COPX
HealthCare

Ark Genomic Revolution ETF
ARKG
Cyclical Growth

Industrial Select Sector SPDR Fund
XLI
Higher Quality US Small-Caps

WisdomTree U.S. SmallCap Fund
EES
China

iShares MSCI China ETF
MCHI
Source: Astoria Advisors

Exchange-traded sundries
  • ETF powerhouse Invesco has launched four actively-managed non-transparent ETFs. In a statement, the firm called its new offerings “a bridge between traditional active and passive strategies.”

  • What’s the theme of 2020? ETF industry veteran Dave Nadig offered this suggestion on Twitter:

Is there an ETF for that?

There are plenty of good reasons to consider investing in
emerging markets now – and one particularly promising way to do it.

“Taiwan is more important than ever from an investment
standpoint and a strategic one,” said Perth Tolle, founder of the Freedom 100 Emerging Markets ETF. “Its location
makes it geographically important for the US in case anything happens in the South
China Sea. It’s ideologically important because it’s a country made up of
Chinese people that is also a successful democracy. And it is the world leader
in industries that are strategically important for our supply chain – in particular
semiconductors.”

MarketWatch profiled Tolle’s ETF, often referred to by its ticker,
FRDM,
when it launched in 2019. At the time, we called it perhaps “the ultimate example of trying to do well financially by doing good,” recognizing that its investment thesis – that countries committed to human and economic freedoms will enjoy more favorable financial returns over time – may sound Pollyannaish.

Yet it’s been borne out this year, especially, as Tolle said
in an interview, “in contrast to the elephant in the room, China.”

Taiwan is a far freer economy and society than China, she points out, and that’s translated into returns through the 2020 recovery. Since the March 23 low, the iShares MSCI Taiwan ETF
EWT
has gained 71%, trouncing the 55% return for the Xtrackers Harvest CSI 300 China A-Shares ETF
ASHR.

“In a recovery especially you want to be in the freer markets,”
Tolle said. “They are more flexible and more innovative and can respond to
market trends faster.”

The longer-term decoupling from China that’s likely to continue under a Biden administration is also to Taiwan’s benefit. And Tolle thinks that even as China grows more bellicose toward Taiwan, ultimately it’s just hot air.

FRDM has 26% of its portfolio allocated to Taiwanese companies, with Taiwan Semiconductor
TSM
as its largest single holding. It has gained 12.1% in the year to date, just trailing the 14.2% return for the S&P 500 – but in the last three months, has surged 26.2%.  

Visual of the week

Many more investors say the global economy is in an early-cycle phase (70%, highest since January 2010) as opposed to recession (12%), which as seen in 2009 & 2012 is a key recovery milestone.

Weekly rap

Editor’s note: MarketWatch has adjusted the parameters of the FactSet screen used to calculate our weekly gainers, losers, and inflows. We hope the new methodology will offer a more complete view of the ETF market.

Top 5 gainers of the past week

Global X Cybersecurity ETF
BUG
17.8%

ARK Genomic Revolution
ARKG
13.1%

Direxion Moonshot Innovators ETF
MOON
12.5%

Invesco Solar ETF
TAN
12%

SPDR S&P Kensho Clean Power ETF
CNRG
11.5%

Source: FactSet, through close of trading Wednesday, December 23, excluding ETNs and leveraged products

Top 5 losers of the past week

Columbia Research Enhanced Value ETF
REVS
-21%

VanEck Vectors Unconventional Oil & Gas ETF
FRAK

-8.5%

VanEck Vectors Russia Small-Cap ETF
RSXJ

-7.5%

VanEck Vectors Oil Services ETF
OIH

-7.4%

Invesco S&P 500 Equal Weight EnergyETF
RYE
-7.1%

Source: FactSet, through close of trading Wednesday, December 23, excluding ETNs and leveraged products

Top 5 biggest inflows of the past week

SPDR S&P 500 ETF Trust
SPY
$7.84 billion

Invesco QQQ Trust
QQQ
$2.53 billion

iShares Russell 2000 ETF
IWM
$2.51 billion

iShares Core MSCI Emerging Markets ETF
IEMG
$1.2 billion

iShares U.S. Real Estate ETF
IYR
$923 million

Source: FactSet, through close of trading Wednesday, December 23, excluding ETNs and leveraged products

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