All I want for Christmas is an ETF!
If there has been a runaway success in the past year, it has been the growth of the exchange traded fund (ETF), a humble investment vehicle to buy an index that has now grown into a range of other, more specialised areas.
By the latest count the market capitalisation of ETFs across the ASX and Chi-X has increased by a staggering 44% to $132.8 billion by the end of November, as millennial investors really embraced the trend to get a broadly diversified portfolio in one trade.
These sort of large, heavily traded, low-cost ETFs are perfect for forming the core of an investing portfolio.
There has been plenty of growth too in the more specialised ETFs that follow trends or give access to otherwise difficult to buy opportunities – ETFs that belong in the satellite part of the portfolio and may be bought to add some spice and hopefully some higher returns to an overall portfolio, even if they form a smaller percentage.
So here, in no particular order, are some of the more interesting ETF satellite “baubles” that can help to fill out an otherwise basic “core” Christmas tree.
VanEck Global Listed Private Equity ETF (ASX: GPEQ) has been a really interesting addition to the ETF landscape, for the first time giving some access to the otherwise “big end of town” investments in private equity.
Some of the big attractions of private equity for the small investor is that it is not highly correlated to other asset classes such as shares or bonds, the returns are usually quite high and many of the opportunities it represents such as start-ups, buy-outs and project financing are difficult to replicate.
With only 2% of the corporate universe covered by share markets, private equity covers the remaining 98% of companies that offer a range of different opportunities.
This index is designed to represent the global performance of the 50 most highly capitalised and liquid listed direct, indirect and private equity managers and has a 10-year Australian dollar performance average of 20.9% a year.
Unless you have been hiding under a rock, it has been hard to miss all of the excitement surrounding hydrogen, including the very public backing for the re-discovered “green” fuel by iron ore billionaire and Fortescue Metals (ASX: FMG) chair Andrew Twiggy Forrest.
Some of that excitement has levelled out recently so this could be a good chance to buy into 30 hydrogen businesses in developed markets plus Korea and Taiwan.
Those companies include a range of players and those involved in fuel cell equipment, technology providers and thermal and chemical processing machinery.
This ETF caused a massive rush on its first day of trading, showing the great demand for cryptocurrency investments.
This ETF is not a direct investment in cryptocurrencies such as Bitcoin and Ethereum, but rather holds shares in crypto-focused businesses like Silvergate, Galaxy Digital, Marathon Digital, Coinbase and Microstrategy.
With plenty of downward movement in cryptocurrencies since this ETF debuted, it is now trading well under its early prices.
If you prefer the pick and shovels approach of this ETF it could be worth a look, with other pure cryptocurrency listings likely shortly if you prefer that approach.
The COVID-19 pandemic has given us all a front row seat into what happens when there is a global semiconductor shortage.
Cars don’t get built, video game consoles become extremely difficult to buy and areas including cloud computing, crypto-mining and clean energy also suffer.
Despite some improved production, there is little sign that the chip shortage will end in 2022 or even the following year as there is a massive mismatch between supply and demand.
Due to the massive cost of new factories and increased consumption from areas including electric cars and video games, there are no shortcuts to meet rocketing demand.
SEMI buys the world’s 30 largest semiconductor businesses, including foundries, designers and equipment makers.
One of the biggest investment trends for the coming year is quality, which is something like the thinking person’s approach to buying growth stocks.
These investors look for companies with high quality scores and in the case of this ETF, they are a high return on equity, stable year-on-year earnings growth and low financial leverage.
Stocks selected by this smart beta approach have been performing strongly, particularly as markets continue to digest pandemic news around new variants and the effectiveness of vaccines.
Another variation on this theme is the SPDR MSCI World Quality Mix Fund (ASX: QMIX).
Many investors look down their noses at companies involved in video games and eSports without realising the size and scope of these industries and the amount of money that can be made.
Some of the companies included in this ETF will be well-known to gamers and include Activision Blizzard, AMD, Electronic Arts, Nintendo, Nvidia, Roblox and Take-Two.
By taking a portfolio approach, this ETF should avoid any problems by a dud release by one company and instead enjoy the growth offered by the overall industry.
Historically, capitalists have been regarded as dodgy people who will do anything to turn a profit.
That may have had some justification in the days of widespread slavery, but one of the most profitable and enduring recent trends has been to take a principled ethical stand on areas such as the environment, social outcomes and governance (ESG).
Unsurprisingly, it actually pays to follow your conscience and this ETF provides an easy way to do that in Australia, following a range of screens to include or delete certain stocks and also take note of other ESG trends such as impact investing and ESG integration.
This is one trend that arguably was first pushed by millennial investors, and it has been so successful that many other investors have employed it as well.
Technology has been one of the more profitable investment themes of the last decade and this ETF differs from most in having an Asian focus.
That has not been a great idea during the past year as China cracked down on many of its successful technology companies, but the market reaction may have been overdone and leaves this a fairly uncrowded trade.
Some of the companies covered by this ETF include ecommerce giant Alibaba, WeChat owner Tencent and search engine company Baidu.
There are plenty of less well-known names in the fund as well and if the regulatory situation in China improves, this could have plenty of growth potential.
Computer hacking is a serious business and combatting it has spawned a fast growing and healthy global cybersecurity sector.
With more information being stored on the cloud and cyberattacks getting increasingly sophisticated, there should be strong demand for cybersecurity services.
Some of the companies riding this trend that are part of this fund include Accenture, Cisco, Cloudflare, Crowdstrike, Okta, Palo Alto Networks and Splunk.