Crypto, AI thematics drive ETF upswing in last 12 months

The latest exchange traded fund (ETF) market wrap-up from Australian provider, Global X, has charted a 37.9 per cent growth over the past year, attributed mostly to ongoing interest in cryptocurrency and artificial intelligence (AI). 

Global X’s Market Scoop for March found the industry grew to $196.6 billion across 358 products, with the top performing ETFs cryptocurrency- and technology-based, after the launch of spot bitcoin ETFs in the US and the global spotlight now on investment in AI innovation.

With over $18.5 billion in net inflows in the last year, the Global X 21Shares Bitcoin ETF returned 168.3 per cent in one year, the Betashares Crypto Innovator ETF returned 161 per cent, Global X 21Shares Ethereum ETF returned 108.5 per cent, and Global X FANG+ ETF returned 76 per cent.

At the other end, ETFs centred around the energy transition and clean energy have suffered from high interest rates impacting borrowing power in the last year, with the Betashares Solar ETF returning -28.3 per cent for the year, Global X Physical Palladium returning -26.6 per cent and Global X Hydrogen ETF returning -25.8 per cent.

They are joined by ETFs tracking exchanges, which typically underperform in times of market upswings, with the Global X Ultra Short Nasdaq 100 Hedge Fund coming out on top at -57.2 per cent 1-Year total returns alongside Betashares U.S. Equities Strong Bear Hedge Fund at -44.4 per cent.

The report also suggested thematic ETFs were back at front-of-mind for investors, after a lull seen in the last two years.

“Thematic ETFs have been a key innovation in the ETF industry, enabling investors to gain exposure to specialised global megatrends. There are now ~40 thematic ETFs available in the Australian market for investors to choose from, with a total of $5.4 billion of Australian
investor money within them,” the report said.

“During 2022 and 2023, thematic ETFs fell out of favour in the face of increasing interest rates to curb strong inflationary pressures. After taking in over $2.2 billion in net flows in 2021, a tenth of this came into thematic ETFs in 2023.

“This fall was attributable due to investors allocating to other asset classes like bonds and cash, and the fact that thematics underperformed. Companies with imbedded long-term cash flows naturally fall in price as interest rates rise. Nevertheless, indications suggest that the peak in rate hikes may be here, with the next move potentially being a rate cut which could bode favourably for thematic ETFs.

“While areas such as virtual reality, food and cloud computing have not seen much up-take, energy transition ETFs were popular last year, and interest is rising in technology-related ETFs, particularly in semiconductors and artificial intelligence (AI). This trend is anticipated to persist, as AI represents a significant megatrend shaping the future in terms of product innovation, industrial efficiencies, and productivity improvements.”