All shortcomings aside, thematic exchange traded funds (ETFs) have been enjoying a healthy few months. As we note across the page, funds like the VanEck Semiconductor ETF (SMGB) have totted up some chunky gains over the period, thanks in part to bets on the likes of Nvidia (US:NVDA).
Others such as the Invesco CoinShares Global Blockchain ETF (BCHN), the Xtrackers Future Mobility ETF (not listed in the UK) and the VanEck Crypto and Blockchain Innovators ETF (DAPP) all enjoyed gains greater than the S&P 500’s 11.2 per cent Q1 sterling total return.
As with plenty of other growth-oriented portfolios (from Scottish Mortgage (SMT) to the capital growth investment trusts), such stellar recent performance offers some hope after a challenging period dominated by rate rises. For some investors, it might pose an opportunity to take profits or at least get out at less of a loss.
And yet not all prominent growth investors have fared so well lately. Cathie Wood’s actively managed Ark Innovation ETF generated huge returns and massive hype in the lockdown era thanks to big wins from concentrated positions in companies such as Tesla (US:TSLA).
The portfolio has taken investors for quite the ride since then: it made a phenomenal total return of some 148 per cent in 2020, before making losses of 24 per cent in 2021 and 67 per cent in 2022. The fund then made a gain of nearly 68 per cent in 2023, but is down by around 17 per cent so far this year. After all that, the fund is down by 7 per cent over a five-year period.
This matters because, having acquired Rize ETF last year, Ark is set to make products such as the Innovation ETF available to European investors this month. As such, UK investors who believe in its focus on future trends may well be tempted to get exposure, or at least take some inspiration from the fund.
Looking at the portfolio itself, it still has some of the big bets it has long been known for. Tesla makes up around a tenth of the portfolio, with Coinbase Global (US:COIN) on a similar weighting. Streaming TV service provider Roku (US:ROKU) is another big name in the fund, as is financial technology conglomerate Block (US:SQ).
It’s still a pretty concentrated fund with around 37 holdings, a big focus on US stocks and some holdings that might still be best known as lockdown winners, such as Zoom Video Communications (US:ZM).
Wood has attracted plenty of criticism in the past, with Morningstar downgrading the fund back in 2022 and arguing that it came with risk management issues and that Wood had “saddled the portfolio with greater risk” by reducing its number of holdings.
Others, meanwhile, have pointed to cases of bad investment timing, including selling down its Nvidia in 2022 and thereby missing out on some huge gains.
However, the fund still has plenty of fans and might be seen as one way to back a smattering of growth companies targeting future trends. As we’ve noted before, it has something in common not just with some of the thematic ETFs already available in the UK, but also the likes of Scottish Mortgage. One of those commonalities, however, is a great deal of volatility.
