One reason investing can be so addictive is the storylines that develop in financial markets. It can be as simple as the rising rates narrative or it can be as exciting as the new opportunity in the uranium markets. And while narratives can provide great investing ideas, they can also just easily roar in like a lion and fizzle out like a can of soda that was left out in the open too long.
So what themes should you be watching out for in 2024 and how can you play them given the Australian equity market is not exactly full to the brim with thematic ideas?
In this, the final wire of a three-part series covering the opportunities in passive investments, we're taking a closer look at four themes and the ETF ideas which can be used to play them. This series has been conducted in conjunction with Betashares and Global X ETFs.
Our first two pieces in this series covered income investing and growth investing.
Global X ETFs Australia Semiconductor ETF (ASX: SEMI)
Global X Uranium ETF (ASX: ATOM)
BetaShares Global Cybersecurity ETF (ASX: HACK)
Betashares Global Uranium ETF (ASX: URNM)
Global X ETFs Australia Semiconductor ETF (ASX: SEMI)
Answers for the first two sections provided by David Tuckwell, Senior Product and Investment Strategist, Global X ETFs Australia.
We are witnessing a significant structural shift to a more AI-dependent world. As we saw in 2023, companies along the AI supply chain will benefit from its increasing adoption and advancements. Notably, semiconductor stocks skyrocketed. SEMI tracks the Solactive Global Semiconductor 30 Index to gain exposure to the sector, including standout stocks like Nvidia (NYSE: NVDA) which soared around 250% in 2023.
Quite understandably, investors may be wondering whether the semiconductor ship has sailed as valuations have elevated. Still, Global X believes the investment opportunity is far from over as the adoption of AI technology and its monetisation is likely to play out over multiple years, having a lasting impact on both markets and the economy.
While ChatGPT and the early forms of generative AI took the world by storm, the real opportunity is in commercial applications of AI models and the industries positioned to benefit from their adoption over the coming decades. Further, by 2030, annual spending on AI chips is projected to grow at a compound annual growth rate (CAGR) of more than 30% to nearly US$165 billion.
Top five holdings: Broadcom, TSMC, ASML, Nvidia, Advanced Micro Devices
Inception date: 27 August 2021
SEMI was the first and remains the only pure-play semiconductor ETF available in Australia.
Management fee: 0.45% per annum
Global X reduced SEMI’s management fee from 0.57% to 0.45% during 2023 to provide more Australian investors with the opportunity to access important thematics that could bolster returns and diversify their portfolio.
Global X Uranium ETF (ASX: ATOM)
Decarbonisation remains one of the most important thematics as governments and businesses the world over aim to tackle climate change. The structural shift away from traditional fuels towards lower-carbon alternatives saw nuclear energy reenter many mainstream conversations in 2023.
A number of factors including supply and geopolitical concerns lay the groundwork for uranium spot prices to rise more than 67% year to date to break through US$80 per pound – its highest price since 2011.
Nuclear energy, using uranium, is generally more reliable than other clean energy technologies including solar and wind. Hence, Global X believes it will play an increasingly important role in meeting net-zero targets across the globe. COP28 indicated 2024 would be another bumper year for uranium and nuclear energy. After two weeks of negotiations, nations ultimately came to a new landmark climate deal titled the UAE Consensus, which represents the first time nations have explicitly agreed to transition away from fossil fuels.
22 countries signed the declaration to advance a goal of tripling nuclear energy capacity globally by 2050.
In fact, the US Special Climate Envoy John Kerry launched an international engagement plan aimed to advance nuclear fusion technology by rallying 35 nations who will focus on nuclear fusion research and development, supply chain issues, regulation, and safety.
As nuclear adoption is set to increase, its impending supply-demand gap will likely expand. The Global X Uranium ETF which invests in the Solactive Global Uranium & Nuclear Components Total Return Index is well-positioned to capture growth in companies along the nuclear value chain such as mining and the production of nuclear components, including those in extraction, refining, exploration, or manufacturing of equipment for the uranium and nuclear industries.
Considering its strong fundamentals and market conditions for 2024, Global X believes uranium will likely continue to outperform in the new year and beyond.
Top five holdings: Cameco Corp, Sprott Physical Uranium Trust, NexGen Energy, Kazatomprom, Uranium Energy
Inception date: 7 December 2022
Management fee: 0.69% per annum
Betashares Global Cybersecurity ETF (ASX: HACK)
Answers for the next two sections are provided by the Betashares team.
The recent Medibank and Optus cyber breaches were a reminder of the threat cybercrime poses to the everyday functioning of society. No industry is as necessary to facilitate a safe digitalised future than cybersecurity.
Looking ahead to 2024 and further, the accessibility of artificial intelligence, continued broad digitalisation across industries, and a severe undersupply of private cybersecurity professionals are the biggest trends expected to continue spurring growth for the largest global cybersecurity companies. Strong tailwinds like these have seen Betashares Global Cybersecurity ETF’s (ASX: HACK) index constituents experience fundamental growth with a CAGR of 19% in EPS since 2020.
HACK serves as Australia’s longest running and largest global cybersecurity ETF allowing investors to gain exposure to this critical industry. Having returned 17% p.a. over the past five years, HACK has also been one of Australia’s best performing ETFs.
Further, HACK’s performance has historically responded positively to significant cyber incidents and geopolitical events, potentially proving a good proxy for investors to growing cyber threats and the companies defending against them. Consequently, HACK may also provide some level of hedging for investors’ portfolios in cases where an individual company’s share price suffers due falling victim to a cyber-attack.
Top five holdings: Apple, Microsoft, Nvidia, Amazon, Meta Platforms
Index: Nasdaq Consumer Technology Association Cybersecurity Index
Management cost: 0.67% p.a.
Inception date: 30 August 2016
Investment risks include: Market risk, cybersecurity companies risk, concentration risk and currency risk
Betashares Global Uranium ETF (ASX: URNM)
A new “nuclear renaissance” is emerging, with a 22-country partnership pledging to triple nuclear energy capacity by 2050 at the COP28 climate change conference. Governments from Japan to Europe now view nuclear energy as a necessary part of the energy mix , both to meet their net-zero emissions goals with reliable base load power, and to provide greater energy security in a time of heightened geopolitical tension.
In the 2010s, unfavourable US energy policy and cheap fracked gas undercut the nuclear industry. But a change in sentiment and significant funding and tax credits made available through the Inflation Reduction Act has changed the outlook in the US. This has resulted in a concerted push to extend the life of existing nuclear reactors, and the first new reactor build in the US for decades – the Vogtle Plant in Georgia.
While there is a compelling long-term investment case for uranium, trying to select individual ASX-listed uranium miners yourself introduces significant stock specific risk. No uranium companies currently rank in the S&P/ASX 100, and all are pre-production – introducing project execution and regulatory risk. URNM is worth considering, it provides diversified exposure to leading uranium miners from across the globe.
Top five holdings: Cameco Corporation, Kazatomprom, Sprott Physical Uranium Trust,
CGN Mining, Uranium Energy Corp
Index: North Shore Uranium Mining Index
Management Cost: 0.69% p.a.
Inception date: 8 Jun 2022
Investment risks include: Market risk, sector concentration risk, international investment risk and regulatory risk
This article was first published on Livewire Markets.
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