Betashares Best & Worst – April 2024

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Welcome to Betashares Best & Worst for April 2024, bringing you insights into our top and bottom performing funds for the month, as well as a spotlight on some funds with interesting recent performance stories.

April was a difficult month for equity investors, with the main driver of losses being the expectations of rate cuts being pushed back or even removed entirely. Progress on reducing inflation continued to stall around the world while growth remained stubbornly resilient, with markets reacting negatively in the now familiar “good news is bad news” dynamic. Stronger than expected US inflation data late in the month reduced the forecast number of rate cuts this year from 3 to 1, while in Australia the market was pricing in a 40% probability of one hike by December. The change in expectations hit growth sectors the hardest, but it wasn’t red across the whole board. Commodities, especially gold and copper saw impressive gains, which flowed through to the miners of those metals.

In fixed income, the rollback of rate cut expectations caused an increase in long end yields, with the Australian and US 10yr government bond yields increasing by 46bps and 48bps respectively.

Possibly the most watched corner of the market in April was currencies, with high volatility and record-breaking levels capturing commentators’ attentions.  The trade-weighted US dollar strengthened 1.6%, demonstrating the resilience of the US economy and putting pressure on other central banks that are already struggling to contain inflation and which are now being forced to deal with higher import prices. The Yen was the hardest hit major currency, depreciating 3.5% against the US dollar and briefly hitting a 35 year low of 160 (~105/AUD)¹. With the USD hitting historic highs and increased currency volatility, currency hedging is becoming an ever more important part of the conversation for Australian portfolio builders. For the spotlight section this month we’ll take a look at three core global equity exposures which employ currency hedging overlays with the aim of protecting investors from FX risk.

Source: Morningstar, Bloomberg. As at 30 April 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Spotlight:

• HGBL Global Shares Currency Hedged ETF – Global equities had a strong year in 2023, with HGBL’s index posting +21.98%, its 4^th highest annual gain since inception in 2006. Getting there was anything but smooth sailing however, with global shares broadly rising through to the end of July before pulling back sharply on the back of weak Chinese economic data, rising oil prices and tensions in the Middle East. Since then, however, the ‘everything rally’ has been in full swing, with April actually being the first month of negative performance since last October. From the start of the year until the end of April some European markets have been the best performers in the portfolio, with Denmark, Italy, the Netherlands and Austria leading the pack and each returning more than 15%. In Australia, investors have been increasingly turning to global equities this year, with the asset class representing more than half of the ETF industry’s net flows since the start of 2023. Since the start of 2023 HGBL has underperformed its unhedged counterpart BGBL by 3.53%, with the AUD falling nearly 5% against the USD, which comprises around 70% of the fund’s currency exposure. However, with the AUD breaching below 65 US cents in April, many investors are increasingly eyeing their currency exposure and considering the benefits of currency hedging.
• HNDQ Nasdaq 100 Currency Hedged ETF – The Nasdaq 100 Index has been the standout amongst the major indices over 12 months to the end of April 2024, largely thanks to the meteoric rise of the ‘Magnificent 7’. The index has led the pack over the whole period, with US tech driving much of the performance in global share markets and reaching record levels of concentration. The big story over the period was the rise of Nvidia, the chipmaker who has become one of the most crucial players in the race by big tech to deploy computationally intensive AI models. From the start of 2023 until the end of April 2024 the company has grown from US$359B to over US$2 trillion in market cap, firmly cementing its status as one of the world’s largest companies. Another major factor for the dominance of US large cap tech has been its relative insulation from increased interest rates. While the companies, which tend to trade at high P/Es relative to the market, did see sharp initial drops when interest rates were increased between 2022 and 2023 (as their future earnings were discounted by the market at a higher rate), since the end of the hiking cycle they have fared surprisingly well compared to the market. A likely reason for this is their high cash balances, low levels of debt and low capital intensity, which has allowed them to continue operating more or less as normal in a higher interest rate environment, while other, more capital and debt intensive industries have struggled. Similarly to HGBL, HNDQ has underperformed its unhedged counterpart (ASX: NDQ) over the last 12 months thanks to the remarkable strength of the US dollar.
• HETH Global Sustainability Leaders ETF – Currency Hedged – Ethical funds have struggled to regain the popularity they enjoyed before the growth crash in 2022², which is somewhat surprising when you look at recent performance. HETH’s index has outperformed HGBL & HNDQ’s indices, as well as the S&P 500 hedged to AUD since the beginning of 2024. A good portion of its outperformance against HGBL’s index has come from upweighting Nvidia, but there are also other stories, such as being overweight Honda Corp and Mercedes Benz, both of which have been taking significant steps to build out their electric vehicle offerings, while Tesla has been excluded since 2022 for numerous ESG issues including worker mistreatment and environmental damage. In addition, long term structural drivers of demand for responsible investments are as relevant now as ever. The United States’ $400bn Inflation Reduction Act, the EU’s €300bn Green Industrial Plan and China’s “Made in China 2025” plan will all help to drive investment into the sector, with the goals of energy security and foreign policy aligning with the private sector for the first time. As well, better ESG data availability and transparency, as well as greater regulatory oversight in the space, will continue to build investors’ confidence in the objectives and outcomes of responsible investing³.

Source: Morningstar, Bloomberg. As at 30 April 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Best:

• XMET Energy Transition Metals ETF – XMET marked its second straight month in the top 3, as soaring copper prices continued to buoy miners. As mentioned last month, the main reason for this is the cutting of production of copper smelters in China, however adding to that in April was BHP’s US$39bn takeover proposal of British copper miner Anglo-American PLC. If the merger (which Anglo-American quickly rejected) is eventually accepted, it would make BHP the world’s largest copper producer, igniting speculation about possible further M&A activity in the sector⁴. Not all the price gains were copper related though. Boliden AB (+23.70%) was the largest contributor to the fund’s performance after announcing it would re-open a zinc mine in Ireland, with improved working methods that are forecast to cut its costs per pound mined by more than a quarter⁵. First Quantum Minerals, on the other hand, gained 18.82% over the month while announcing the closure of its Ravensthorpe nickel mine in Western Australia, as nickel prices continue to suffer an extended slump⁶. Ivanhoe Mines Ltd (+14.28%) was the third largest contributor for the month.
• MNRS Global Gold Miners ETF – Currency Hedged – Gold continued to soar for much of April, reaching a new all time high of USD$2426/oz on the 13^th before paring back to finish the month around USD$2335/oz. Conventional wisdom suggest that gold performs better in a low interest rate environment, as it is more attractive compared to income producing assets like stocks and bonds. Early in the month promising economic data out of the US revived hopes of an imminent rate cut(s), during which time gold gained over 8% to its monthly peak, then quickly suffered its worst daily loss in close to two years as weaker than expected US business activity data dashed the rate cut hopes⁷. Another reason for gold’s recent strength has been central bank buying, as geopolitical uncertainty leads the institutions to attempt to reduce their reliance on US dollars. China in particular has been a driver of this effect, adding 160,000 ounces of gold to their reserves in March⁸. Newmont Corp (+13.88%) was the largest contributor for the month after beating EPS estimates by over 50% thanks to increased production from the sites it acquired from Australia’s Newcrest in November⁹. Wheaton Precious Metals (+11.61%) and Pan American Silver Corp (+23.06%) rounded out the top 3 contributors.
• URNM Global Uranium ETF – While our Betashares Gold Bullion ETF – Currency Hedged (ASX:QAU) was the third best performing fund for the month it was driven by much the same factors as MNRS, so to avoid repetition we’ll skip down to URNM. While the price of uranium was relatively flat over the month, uranium miners jumped on the news that President Joe Biden had signed legislation attempting to ban the import of Russian uranium, as well as unlocking US$2.7bn to build domestic uranium supplies for US nuclear plants. Previously, around 12% of America’s uranium came from Russia. The order does include a waiver that allows the import of Russian uranium if no alternative source can be found, however US nuclear power plant owners are prepared for retaliation from Russia, including the possible banning of uranium exports to the US entirely¹⁰. Chinese miner CGN Mining Co was the largest contributor after gaining 19.07%, followed by Cameco Corp (+6.01%) and Sprott Physical Uranium Trust (+3.70%).

Source: Morningstar, Bloomberg. As at 30 April 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Worst:

• CRYP Crypto Innovators ETF – April saw a reversing of the momentum that the crypto industry had enjoyed over the last 6 months in the lead up to the much-anticipated bitcoin halving. It would appear that much of the immediate price impact of the halving (in which the reward for mining bitcoin halves, restricting supply going forward) was previously priced in by the market, which retracted somewhat while waiting for the next big driver of performance¹¹. Over the month the total cryptocurrency market capitalisation (of the coins themselves) declined 11.4%, bringing the miners and exchanges with them. Microstrategy led the losses after announcing the addition of generative AI capabilities to its business analytics platform. The stock lost 37.52% in April, paring back some of its remarkable February and March gains of 104.07% and 66.65% respectively. The significant volatility is likely helped by the fact that the company reported bitcoin purchases in March that brought its total ownership to more than 1% of the bitcoin that will ever exist. Coinbase (-22.75%) was the second largest detractor despite announcing integration with the Bitcoin Lightning Network which promises to speed up and reduce the cost of transactions on the platform¹², while bitcoin miner Marathon Digital lost 28.57%, announcing it will double its bitcoin mining capabilities in 2024 as a response to the April halving¹³.^{^}
• TANN Solar ETF – The solar industry continues to undergo a significant shakeout as China’s industrial overcapacity leads to continuing falls in prices. After years of subsidies, China now accounts for 80% of global solar module production, which can no longer be absorbed by a domestic sector struggling with weak household consumption and high levels of debt¹⁴. The problem is being felt across the whole clean energy sector, to the point that US Treasury Secretary Janet Yellen warned Beijing on a visit to China during the month about the damage that the overproduction would pose to American producers. While this is bad news for producers now, cheaper solar panels may offset some of the increased costs for consumers due to higher interest rates, incentivising broader adoption of the technology and benefiting the industry in the long run. NextTracker Inc (-23.63%) and SolarEdge Technologies Inc (-17.01) were the largest detractors for the month, while Sunrun Inc lost 21.59% despite demonstrating an innovative way for solar companies to raise capital by issuing a US$230m note collateralised by the income generated from a portfolio of 27,094 rooftop solar installations across the US¹⁵.
• IPAY Future of Payments ETF – The fintech sector has continued to struggle in the current macro environment as higher interest rates weigh on the margins of the often debt-heavy businesses. As well, increasing competition and market saturation has led to higher customer acquisition costs and price pressure. The previously mentioned Coinbase Global was the largest detractor for the month, followed by the Dutch payments processing firm Adyen, who lost 28.27% after posting earning in which it met revenue estimates despite processing a higher than forecast volume of payments¹⁶. Jack Dorsey’s Block Inc (-13.32%) rounded out the top 3 detractors after a price target downgrade from Morgan Stanley, citing concerns with the company’s ability to grow with Gen Z¹⁷.

For trailing performance of all Betashares funds please see: Betashares Monthly Performance – April 2024

*Excludes short and geared funds.**Annualised for funds with more than 1 year’s performance history.^Note: CRYP does not invest in crypto assets directly, and does not track price movements of any crypto assets.

1: JPMorgan

2: Morningstar

3: AdviserVoice

4: The Globe And Mail

5: Mining Technology

6: ABC

7: Mining.com

8: CNN

9: Mining.com

10: Bloomberg

11: Binance

12: Yahoo Finance

13: The Block

14: Reuters

15: Renewables Now

16: Morningstar

17: Yahoo Finance