Understanding the ETFs in our Morning Wrap

Our Morning Wrap includes a niche list of Exchange Traded Funds (ETFs) to help gauge sector performance.

They’re all US-listed but have exposure to various companies around the world, including ASX-listed companies. You can find the full name, ticker and links to the respective ETF sites here.

This article will help you understand how these ETFs provide deeper insights into specific sectors.

Are these ETFs any different to ones by Vanguard and Betashares?

No, ETFs are ETFs. The only difference is that these are US-listed. Most of them are run by investment management companies including Global X, Invesco, iShares and VanEck.

Same thing, different packaging.

What companies do these ETFs invest in? 

These ETFs invest in some of the largest and most dominant companies in their respective sectors. Their geographic exposure can vary depending on the sector, for example:

Uranium: Canada, Kazakhstan and Australia are the largest uranium producers in the world. The top holdings for the Global X Uranium ETF on our watchlist include (% of net assets as at 12 October 2022):

• Canada: Cameco (22.1%)

• Canada: Sprott Physical Uranium Trust (9.95%) 

• Kazakhstan: Kazatomprom (6.19%)

• Canada: NexGen Energy (5.57%)

• US: Uranium Energy Corp (4.7%)

• Australia: Paladin Energy (4.73%)

Biotech: Unfortunately, CSL didn’t make the cut for the iShares Biotechnology ETF, that’s dominated by mostly US-listed giants. Its top holdings include (% of net assets as at 21 October 2022):

• Gilead Sciences (8.6%)

• Amgen (8.55%)

• Vertex Pharmaceuticals (7.77%)

The exposures vary depending on the ETF. You can expect some of the more tech-oriented ones to be mostly US-listed tech names. Whereas some of the more commodity-oriented ones will likely have exposure to ASX-listed names.

How do these ETFs give me better insights?

Investors often check US futures or US overnight performance to gauge how the ASX is going to perform in the upcoming session.

I’m sure we’ve all had moments where we’re furiously checking US futures for peace of mind that our stocks will do ok.

These ETFs seek to take that to the next level because they’re all very sector specific.

If you have a portfolio full of lithium stocks. It doesn’t make sense to check the S&P 500 or the Nasdaq when you have a very sector specific ETF like the VanEck Rare Earth/Strategic Metals ETF or the Global X Lithium & Battery Tech ETF.

Here are a few hypothetical examples:

• The US markets closed flat but the Global Jets ETF rallied 3% because two US airlines posted better-than-expected results and said they expect to smash pre-covid earnings for the full year. This could be a positive tailwind for local travel names like Qantas, Flight Centre and Webjet

• The US markets closed 1.0% higher but this was mostly driven by the outperformance of blue chip and a handful of mega cap tech stocks. The eCommerce, Fintech and Cloud ETFs all closed just above breakeven. So perhaps don’t get too bullish about local tech when the market opens

• The US market fell -1.0% but the Rare Earth/Strategic Metals ETF rallied 5% after Biden announced some massive subsidies for EVs. You’d otherwise expect local lithium stocks to fall, but instead, the good news will likely buoy their share prices

We not only look at these ETFs on a day-to-day basis but look at their overarching trend. For example: The Uranium ETF has been trading sideways since March 2021. Uranium fits into the bullish net-zero and energy security thematic, but the ETF just isn’t going anywhere. Perhaps a sign that its not ready to move just yet but worth keeping an eye on if it breaks out. 

If there's any other questions you might have or worth adding to this FAQ, please feel free to reach out via my email below.