Themes, Themes, & more Themes (TWTW – June 14-18, 2021)

“Thematics” has gained prominence in terms of investment strategy, and evidently, ETFs have played an important role, both in terms of providing access to “themes”, as well, as in some instances, defining the theme, creating the products, and thus effectively boosting the appeal of a specific theme with investors who otherwise might not have considered the approach.

We’re hosting our next “thematics” webinar on June 23, 2021, at 12:00 pm EST (Click HERE to Register), looking at Cybersecurity. Recall that we covered off 5G, as well as Clean Green Energy prior to this. (To view the webinar(s) and get your CE credits:  5G and Clean Green Energy Click HERE).

Needless to say, there are many more themes out there. For instance, as I mentioned 5G above, this week I came across a chat between ETFGI Deborah Fuhr, and Direxion … discussing a 2X leveraged 5G solution as well as a 2X Travel and Leisure themed ETF. In Canada, 5G is available via NXTG (FT Portfolios Canada), and the Travel theme is available via Harvest Portfolios TRVL. Both, in my books, provide a diversified way of accessing the theme, with the theme itself, effectively providing the ability to access some “alpha” for your clients. (Disclosure: I personally have exposure to both of these themes, alongside a few others …)

Anyway, as I ramble on here, the question is … when did the first thematic ETFs come into existence, and who brought them out for investors to consider as an alternative way of accessing exposures otherwise more traditionally packaged under an “industry” umbrella?  If memory serves, I’d have to say that in the US, I believe both Powershares, as well as First Trust, have long been purveyors of “thematic” ETFs.

Here in Canada, we now obviously have access to themes from a number of players:

And interestingly, if I look back far enough, I think some of the original “themes” available here in Canada were brought to market by Claymore (now iShares), under Som Seif’s watch. I mention this here in passing because it is worth remembering how this space has evolved, and who the innovators who continue to lead that evolution are/were. These original themes, again if memory serves: Global Water; Global Agriculture; and Global Infrastructure. Now? Many, many, many, more … to the point that we are working on a Thematic ETFs Summit for this summer. More on that later!

Now on to this past week:

The big theme, clearly was that the US FED threw a bit of a curveball to markets, in suggesting that all of the accommodation in the world might end … maybe a little sooner, on account of the fact that things … well … are getting better. So markets freaked out a tad, and apparently suffered their worst week since last October.

As far as “entertainment”, with EURO 2020 underway, one Cristiano Ronaldo unleashed what by week’s end has become known as Bottle Gate, by simply removing a bottle of EURO 2020 sponsor Coca-Cola from the table he sat at for a pre-game press conference, and replacing it with Agua. NOW THAT was a statement! Does anybody really think Coke is a sports drink? Resulting, apparently, in Coke promptly losing $4 Billion of market cap, no matter that the bottle of “Agua” Cristiano replaced the Coke with was water that also belongs to … Coke. What a world!

Anyway, I found this video from Russell Brand discussing the snafu quite entertaining as well as providing decent info => Click HERE!

But … of course … Coca-Cola fans won’t like it any more than the EURO tournament organizers, who apparently reminded the players to not bite the hands that feed them (although naturally, they didn’t put it that way).

Though the winningest (that’s not really a word, right?) … regardless … the winningest performance this week outside of the world of soccer has got to go to Pink Floyd’s Roger Waters, who had some choice words and responses to Facebook’s Mark Zuckerberg’s entreaties regarding making use of the famed musician’s a Brick In The Wall 2 to promote Instagram. Good for you, Roger Waters – so, so, so refreshing in a world where everything and everyone seemingly is expected to be for sale, to hear what you have to say. Loved it, man!

Roger’s core sentiment is sure as heck well communicated by him here! To watch (the full video … not just the short answer lol) => Click HERE!

The week then, as mentioned at the onset, saw a resurgence of volatility, and more notable differentials in terms of weekly performance, relative to last week:

With technology showing strength (Shopify), real estate, staples, healthcare, and utes showing their defensive characteristics and colours, all the while the leadership / reopening darlings performance-wise of recent weeks and months – energy and materials experienced notable weakness…

While on the topic of looking at the market through different lenses, here is an update of a graph I did a little while back contrasting Value and Growth in Canada.  I have now added Min Vol and Dividends as well as multi-factors in Canada – the performance differentials covering the period Oct 31, 2020 (a mere 9 days before the huge Pfizer / BioNTech vaccine news) to May 31, 2021:

The takeaway, please? Well, let’s remember that Value and Dividend in Canada typically has a huge financial sector bias (XDV: 53.78%; XCV 64.98% as of Friday’s close…). And here we go: financials do well, then value and dividend significantly outperform. Min Vol; Multi Factors; and Growth … not so much … Will that continue? I wouldn’t be surprised if it did at this point!

Finally, to wrap up, I’d note that TLT (20-year US Treasuries ETF) finished the week on a strong note. What was that all about? Time will tell, but after bonds getting smoked in the first 3-3 1/2 months of 2021, they first stabilized and more recently recouped some of their earlier losses. The FED may well be saying higher short term rates could materialize sooner, but the mighty bond market looks to be saying – not so fast with inflation fears, and as for yield curve steepness suggesting a more buoyant economy …  wait a minute – maybe just maybe risk management says: “let’s flatten that curve a tad until we are clearer about where we’re headed from here …”.

Oh – one final thing to highlight in terms of looking at relative performance across iShares ETFs – specifically the former Claymore line-up – to the end of May 2021:

Here are the top and bottom performers to the end of May 2021:

What are some takeaways that I consider worth noting?

  • Fundamental Indexing – which is steeped in Value – is outperforming
  • The ladders on the bond side – which I consider useful in an environment where higher rates are anticipated respectively when foreseeing yield curve steepness – outperform when benchmark bond indices get hit. Worth noting, why? Well, I don’t know about you, but when I hear 1-10, the 10 might stick with me more so than the 1. Same with the 1-5. My point though – 1-5 duration is very short; and 1-10 not anywhere near 10 (as far as duration, which key determinant of returns related to yields moving one way or the other). Worth remembering in my opinion.
  • Also – as noted in a tweet earlier in the week, not a fan of CMR in terms of seeing the TR results produced which amount to zip zilch, nada over recent 1, 3, and 6 months holding periods …

Stay safe, have a great week, enjoy the good weather and being able to see friends and loved ones again, as well as moving more freely!