Looking at the ETFs with the highest returns YTD, a few thematic standouts have emerged. As a reminder regarding long-term investments, thematic investing is cyclical. As a result, many of the YTD winners were last year’s losers and vice versa. This exemplifies the classic mantra that past performance is not predictive of future returns. However, it can be helpful to analyze performance in real time to identify thematic trends in the market.
For the purpose of this analysis, I am going to exclude single-stock ETFs, leveraged and inverse ETFs, option income, and crypto and bitcoin-related strategies. Bitcoin spot is up more than 45% YTD and Ethereum is up over 27%. Accordingly, crypto-based strategies are up considerably so far this year due to that crypto performance.
Cannabis a Thematic Winner
Having seen a few ETFs “weeded” out along the way through closures, cannabis ETFs are among the top-performing themes this year. That’s in the wake of several years of up and down performance. The catalyst is the prospect of the deschedulization of cannabis, moving it from the most restricted drug category, Schedule 1, to a lower, less restricted level.
A major outcome of descheduling would be cheaper loans and tax savings for cannabis companies. It is no wonder then, that the top-performing cannabis ETF, the AdvisorShares Pure Cannabis ETF (YOLO ), is up 35.7% YTD, with most of its cannabis peers — including the Roundhill Cannabis ETF (WEED ), the AdvisorShares Pure US Cannabis ETF (MSOS ) and the Amplify Alternative Harvest ETF (MJ ) — similarly up in excess of 30% for the year.
Copper Sees Resurgence
Next up is a performance trend I highlighted a few weeks back: the surprise rally in Copper ETFs. I won’t rehash that article, which outlines the underlying drivers of this thematic trend, again. Still, the Global X Copper Miners ETF (COPX ) is up 27.8%, with the Sprott Junior Copper Miners ETF (COPJ ) up 26.1% YTD, and the iShares Copper and Metals Mining ETF (ICOP ), up 25.1% during the same period. Sprott also has another copper ETF entrant, the Sprott Copper Miners ETF (COPP ), which only launched March 5. It too is exhibiting strong performance since inception, up over 30% since launch.
Semiconductors an Uneven Thematic Winner
In the category of semiconductors, there has been quite a divergence of returns, but the VanEck Semiconductor ETF (SMH ), up 25.8% year-to-date, is clearly the leader of the pack. The Invesco PHLX Semiconductor ETF (SOXQ ) and iShares Semiconductor ETF (SOXX ) trail far behind with 14.3% and 13.7% YTD returns.
If all of these passively managed ETFs track semiconductors, why is VanEck’s fund massively outperforming its peers? I put on my ETF detective hat, and I think I have it figured out. SMH is very concentrated, with only 25 semiconductor holdings. Its top position is NVIDIA with a 20.9% weight, which is up 81.5% YTD. Case closed. Is it better to be more diversified from a risk standpoint? That is something that investors and advisors need to decide for themselves.
Alternative Alternative Energy
Whereas most alternative energy funds have not demonstrated stand-out performance this year, especially amid rising oil prices, I wanted to highlight an actively managed performance outlier, the TCW Transform Systems ETF (NETZ ) which is up 25.1%. Unlike many of its alternative energy peers, NETZ does not shun big oil stocks. Instead, it recognizes that companies like Exxon Mobil may lead or win in an energy transition scenario where efficiency and alternative approaches are valued.
Its top 5 holdings are not the typical names seen in an alternative energy portfolio and include: waste management firm Republic Services, GE Aerospace, French aerospace firm Safran, utility service company Vistra, and Microsoft. Investing in the interconnected landscape, including companies in transportation, the electricity grid, and power generation regardless of sector is a different approach. As a result, it may not align with all investors looking for exposure to alternative energy.
Another category of alternative energy investing outperforming this year is uranium and nuclear. This is another “alternative energy” theme that is being rewarded on a YTD basis. However, it is another one that may not be consistent with all investor values in the clean energy space.
Topping the uranium and nuclear ETF list is the Sprott Junior Uranium Miners ETF (URNJ ) up 21.4% YTD, followed by the VanEck Uranium and Nuclear ETF (NLR ), up 17.9% YTD; the Sprott Uranium Miners ETF (URNM ), up 15.6%; and the Global X Uranium ETF (URA ), gaining 14.9% YTD.
Magnificent Seven Now More a ‘Fab 5’
Another interesting item of note is that most of this year’s top-performing themes are not explicitly “tech-focused” — semiconductors being the one exception. This reflects the fact that the market is rewarding other sectors, themes, and market cap exposures.
In fact, if we look at the Magnificent 7 stocks YTD, only five of the seven are up during that period: NVIDIA, +81%; Meta Platforms, +35%; Amazon, +23%; Alphabet, +21%; and Microsoft, +10%. Meanwhile Apple and Tesla are down 5% and 32%, respectively. By comparison, Warren Buffet’s Berkshire Hathaway is up 15%, suggesting a shift in market leadership this year.
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