Turkey, uranium and blockchain ETFs have a short wave of risk in the third quarter
All seven ETFs have since fallen in the past month
Turkey, uranium and blockchain ETFs made up an eclectic winner’s circle in Q3, as a summertime “dead cat bounce” saw investors rotate into more niche risk exposures.
Topping the leaderboard during the quarter were the $68m Lyxor MSCI Turkey UCITS ETF (TUR), the $106m iShares MSCI Turkey UCITS ETF (ITKY) and the $11m HSBC MSCI Turkey UCITS ETF (HTRD), which rose 16.7%, 16, 1% and 16%, respectively, over the three-month period.
But while Turkish stocks outperformed wider Europe by 58% between the start of the year and September 9, this was likely caused by unorthodox Turkish monetary policy rather than anything of value-add.
Source: Bloomberg, US Global Investors
With the country’s employment at 10.6%, President Recep Erdogan decided to ignore the 80% year-on-year inflation figure released in September and cut interest rates by another 100 basis points (bps) – now down 600bps since last August .
In this scenario, Turkish investors may have given up looking for yield in the country’s bond issues and instead continued to pile into stocks, some of which have shifted away from fundamental valuations.
Foreign investors also joined the hunt for riskier returns, with August marking the biggest foreign inflows into Turkish stocks since last November, according to Bloomberg data.
Then the $24m HANetf Sprott Uranium Miners UCITS ETF (URNM) returned 14% during the three-month period as Western policymakers sought ways to end dependence on Russian fossil fuels.
In Europe, France has committed €52 billion to at least six new pressure reactors, the UK has allocated £20 billion to a new nuclear power plant, while Germany and Belgium are considering plans to phase out their nuclear capacity.
Elsewhere, Japan plans to restart its reactors for the first time since the 2011 Fukushima disaster, and the US$385 billion inflation-reduction law included tax credits for existing reactors, prompting California to extend the life of its last plant.
URNM outperformed its counterpart, the $24m Global X Uranium UCITS ETF, by 8% over the period given its more refined focus on uranium via exposure to the physical commodity as well as physical uranium, while URNU has some broader engineering companies in its business. basket.
Finally, blockchain ETFs broke even, with Global X Blockchain UCITS ETF (BKCH), VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) and ETC Group Digital Assets & Blockchain Equity UCITS ETF (KOIN) returning 15, 4%, 12.8% and 11.5% in the period.
While impressive given the difficult year thematic strategies have had so far, all of these returns occurred in one month – July – when blockchain ETFs returned between 47% and 66% in just four weeks.
As July’s US inflation reading of 8.5% came in lower than expected, investors likely began betting that the Federal Reserve will end its rate hike cycle sooner than expected by allocating to debt-laden growth stocks.
Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, told ETF Stream in August: “The last two months we have seen what we call a rogue rally.
“The assets that were hit the hardest all year, mainly crypto, were the assets that rose the most in July.”
Interestingly, as later inflation readings led the Fed to remain hawkish and investors’ risk-on appetite faded, all seven top-performing ETFs during the quarter posted negative returns in the past month.
The hardest hit have been the blockchain and uranium ETFs, which have fallen between 12% and 17% in four weeks.
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