• How the ETF can tell you which thematics are winning
  • Uranium, Japan, and semiconductor thematics are winning this year
  • The losers so far have been cryptocurrency, clean energy, and battery metals

 

The macro backdrop for 2024 is easy enough to read – interest rates, geopolitics, elections, and artificial intelligence. But what’s not so clear is how it would actually filter down to the sector levels.

A good way to see this bigger picture – ie; which thematics are doing well and which aren’t – is to look at the ETF market.

This is because ETFs are diversified and cover most major asset classes and sectors, giving you a fuller picture of what’s going on compared to looking at just individual stocks.

On the ASX today, there are 325 listed ETFs.

We’ll take a look at the best and worst performing ETFs year to date, to see what thematics are the most popular, and vice versa.

 

Which themes are doing well?

Data taken from Commsec on 13th February

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Looking at the list, it’s clear to see that the best performing themes this year are uranium, Japan, and semiconductors.

 

Uranium thematic

Uranium prices have been rising and there’s a wide consensus that there will be more gains in 2024.

The surging prices are mainly driven by forecasts for a uranium supply deficit over the next few years.

Forecasts vary, but a lot of market analysts project an average supply deficit of 15 million kilograms per year over the next decade.

Stockhead has covered in our stories previously that a number of mining operations are ramping up their uranium production, including Boss Energy’s Honeymoon (in South Australia), Paladin Energy’s Langer Heinrich (in Namibia), and Cameco’s McArthur River project (in Saskatchewan, Canada).

Sentiment around nuclear energy is extremely bullish, with 22 countries pledging to triple nuclear capacity by 2050.

Add to this increasing geopolitical instability, and uranium miners may be the ultimate beneficiaries here.

 

Japan thematic

Japan’s stock market is booming.

The Nikkei index hit a fresh 34-year high last week, mainly driven by the expectations that the BOJ will scrap its negative interest rate policy.

The much weaker yen has also helped the country’s giant exporters gain an advantage in global markets.

Japan has limped through the last few decades following the collapse of a massive asset bubble in the 1990s, which unleashed years of deflation.

But now, there are many signs the Japanese economy is finally shifting to a higher gear.

Warren Buffett is the most high-profile investor in Japanese stocks when he snapped up stakes in Japan’s five biggest trading companies during the Covid-19 period.

 

Semiconductors thematic

There’s no question that the recent surge in AI is driving the semiconductor industry.

The rapid rise in AI, particularly since the emergence of ChatGPT, has led to a global shortage of chips that are used to train the latest large language models.

“In the last 40 years, nothing has been this big,” said Nvidia CEO Jensen Huang.

“It’s bigger than PC, it’s bigger than mobile, and it’s gonna be bigger than the internet, by far.”

 

Which themes are not doing so well?

 

Data taken from Commsec on 13th February

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Meanwhile, the worst performing themes this year have been cryptocurrency, clean energy, and battery metals.

 

Cryptocurrency thematic

The ASX’s only crypto-focused ETF – the BetaShares Crypto Innovators ETF (ASX:CRYP) – has been the worst performing ETF this year.

The selloff was mainly due to profit taking after Bitcoin surged by +70% in the past six months.

The performance of cryptos in 2024 will depend on a variety of catalysts.

These include: Spot Bitcoin ETF approval (completed in January), halving of Bitcoin, SEC regulatory changes, and the risk environment.

“Further, the rising hopes for the interest rate cuts in the US market will bolster the uptrend momentum in BTC price,” said a note out of CoinPedia.

 

Carbon thematic

The carbon/clean energy sector such as solar, wind, and hydrogen witnessed one of its toughest years in 2023.

Supply chain issues, interest rates rises, and the energy crisis triggered by wars, hit the sector across all areas of the supply chain.

But as the market now pivots to a possible Fed rate cut in May, things could turn around fast for these stocks.

“If the rates cycle has indeed turned, this would be a big boost for clean energy companies, but even a stabilisation in rates would be positive as lags in the system kick in,” said Paul Gooden, an analyst at Fidelity.

 

Battery metals thematic

Lithium is out, and uranium is in – that’s pretty much the headlines this year.

Lithium price has come off significantly on the back of dwindling demand for electric vehicles and oversupply of the metal.

But is this now a good time to pick up some of the languishing stocks in the sector? Looks like the jury is still out.

“There is still a hunger for lithium generally and positive sentiment for long-term demand fundamentals,” Fastmarkets analyst, Jordan Roberts, told Stockhead.

“I believe that the first sign of a stable recovery in price, not just short-term restocking driven, will be reflected in stock sentiment.”

 

Read more: Eye on Lithium: The consensus is there’s no consensus on when lithium prices will begin to rise again

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