Betashares Best & Worst – October 2024

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Welcome to Betashares Best & Worst for October 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.

Key events in October 2024:

• Build-up to the US election, with an increasing likelihood of a Trump victory (as now confirmed).
• Escalation of the military conflict in the Middle East, with Israel’s move into Lebanon and Iran’s missile attack on Israel.  This was followed by a muted retaliation by Israel.
• US Q3 reporting season – generally strong results among the magnificent 7, with most beating expectations.  Tesla shares surged by the largest amount in more than 11 years after reporting an 8% revenue growth.
• Markets left somewhat disappointed by the underwhelming Chinese stimulus measures.

Source: Morningstar, Bloomberg. As at 31 October 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Spotlight:

QUS S&P 500 Equal Weight ETF – Equally weighting the S&P 500 Index not only helps to mitigate the concentration risk associated with the market-cap weighted strategy, but valuation metrics and political developments point favourably towards this strategy when compared to other US equity indices:

1. Expensive Equities:  The P/E of the market-cap weighted (‘MCW’) S&P 500 Index has increased by over 16% so far in 2024, with much of this driven by the top end of the Index – the equal weight (‘EW’) Index has increased by a more modest 9% and currently offers a 22% P/E discount on its MCW counterpart.  The EW index also has an estimated EPS growth of 13% for 2025, compared to 11% for the MCW index¹.  Higher growth prospects at a more palatable valuation.
2. Onshoring:  Trump’s onshoring policy and vow to boost domestic manufacturing is potentially more favourable to the EW Index, given it has greater exposure to materials, industrials, and utilities (combined 13% increase over MCW), and a 10% increase in revenue exposure to the US², positioning it well to benefit from Trump’s onshoring policies.
3. Tax cuts:  Small caps received an initial kick as Trump triumphed over Harris and are set to benefit from fiscal policy under the Republican Party.  However, around 40% of the companies in the Russell 2000 Index are unprofitable³, meaning there will be limited benefit of any tax cuts.  The S&P 500 EW Index maintains a smaller company bias vs the MCW Index, but still invests in profitable companies that will benefit from cuts in taxation.

YMAX Australian Top 20 Equity Yield Maximiser Fund (managed fund) – Dividend yield and income often play a significant part of Australian investors’ portfolios.  Forward-looking dividend growth estimates should therefore be one of many factors to consider when assessing shares or funds.

Looking at the top end of the market, Morningstar Analysts have predicted that the ‘Big 4’ have compounded annual growth rates of dividends of 3.90% (CBA); -0.89% (NAB); 0.34% (Westpac); and 1.66% (ANZ).  The mining companies are even less inspiring, with BHP predicted at -11.94% and Rio Tinto at -7.16%⁴.

While these are estimated values only and only relate to a select portion of the Australian stock market, it demonstrates a level of uncertainty around future income streams in the form of cash dividends.  YMAX takes an alternative approach to generating income for investors.  Using a covered call strategy, the fund aims to generate consistent income via the option premium, while also benefitting from a degree of capital growth by striking out-of-the-money.  When grossed up for franking, the past 12 months have provided a distribution yield of 8.1%.  Perhaps more relevant to the above paragraph though – when gross dividend yields of an ASX 20 ETF bottomed out at 3.06% in 2021, YMAX was still sitting at 8.27%, higher than even today’s value⁵.

ARMR Global Defence ETF – Defence spending globally has been rising for 9 consecutive years, reaching US$ 2.4 trillion last year.  Amongst NATO member states, a record 23 of the 32 countries are set to reach the 2% of GDP spending target in 2024 – up from 6 countries in 2021⁶.  Defence companies have seen meaningful growth on the back of this increased commitment, and much of the cutting-edge technology developed by these companies also have civilian applications.

To provide investors with a means of exposure to the top NATO-aligned defence companies, Betashares launched ARMR in October.  The index tracked by ARMR provides a pure-play exposure, only including companies with 50% of revenue derived from defence equipment and technology.  The Fund holds 13 of the top 20 global defence companies (by revenue), with the only excluded firms being broad aerospace companies (Boeing, Airbus) and defence companies from non-NATO-aligned countries.

Source: Morningstar, Bloomberg. As at 31 October 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Best:

CRYP Crypto Innovators ETF – October was a strong month for the crypto market as a whole, with Bitcoin up 18%⁷ (although this is a modest rise in comparison to the post-US election boom – expect the fund to re-feature next month).  While CRYP does not invest directly in bitcoin or other cryptocurrencies, the ‘picks and shovels’ companies held by the fund can be expected to be beneficiaries of growth in the market and rising coin prices.

MicroStrategy was by far the lead contributor to CRYP’s returns, with their shares climbing 45% for the month, contributing over 6.46% to the Fund’s returns⁸.  The company develops business intelligence software but is more widely known as the largest publicly-traded corporate holder of Bitcoin besides BlackRock’s US-listed ETF, now holding around US$24 billion⁹, and is often treated as a pseudo crypto hedge fund proxy.

ROYL Global Royalties ETF – Given the diversity of ROYL’s holdings, returns typically demonstrate low correlation to the broad market – the Fund’s index has just a 49% correlation to the MSCI World Index over 5 years¹⁰.  The double-digit returns in October for instance were driven by a breadth of sectors, including oil and gas royalties, precious metals, and BioTech.

Texas Pacific Land Corp, landowners with a nonparticipating perpetual oil and gas royalty interest (NPRI), gained over 31% for the month likely driven by middle-east tensions, the probability of a Trump victory, as well as their highly anticipated Q3 earnings after an exceptional result the previous quarter.

Wheaton Precious Metals Corp (+8.07%) and Franco-Nevada Corp (+10.03%) both benefitted from rising gold, silver and precious metal prices¹¹ due to a combination of geopolitical risk, weakening economic data, and falling interest rates.

Finally, XOMA Royalty Corp (+14.05%) who provide funding to biotech companies in exchange for royalties acquired a 50% economic interest in future milestones and royalties from Twist Bioscience’s 60-plus early stage program, helping to drive the share price up in October¹².

URNM Global Uranium ETF – After returning to the ‘Best’ list in September, URNM has featured again in October having returned 8.66% for the month.  September’s major development was the commissioning of small modular reactors by Microsoft, Google and Amazon – projects which have the potential to popularise commercial nuclear power use, creating a structural tailwind for uranium.

Looking into URNM’s performance in October, the Fund’s largest holding – Cameco Corp – contributed 2.8% to returns after CEO Tim Gitzel declared their intention to expand mining operations based on the strength of demand¹³.  Cameco stock gained around 10% for the month following the announcement.

Perhaps more significantly though, the United Nations Climate Conference, COP29, was held in Baku in November, where nuclear power received yet more support outside of Australia with an additional six countries joining the declaration to triple global nuclear energy capacity by 2050¹⁴.

Source: Morningstar, Bloomberg. As at 31 October 2024. Past performance is not an indicator of future performance of any index or fund. All performance figures quoted in AUD.

Worst:

QRE Australian Resources Sector ETF – The Australian resources sector saw a bumper month in September, topping the ‘Best’ list after the Chinese Government announced plans of a stimulus package.  However, investors were left disappointed when the extent of these stimuli began to emerge in October, and with the Australian miners and resources so closely tied to Chinese economic growth, QRE fell by 4.81%.  Fears around what a Trump victory means for China also played a part, with a strong possibility of tariffs on Chinese imports once he re-enters office in January.

TANN Solar ETF – As the likelihood of a Democratic sweep dwindled, renewable energy stocks were always likely to be a casualty.  On top of this, a number of disappointing earnings releases also contributed to TANN’s negative returns for the month.

Enphase Energy was the leading detractor, taking -1.70% from the Fund’s returns in October having dropped over 25%.  EPS missed estimates by 14%, with revenue down 31% form Q3 last year¹⁵.

Over the long-term, softer inflation and interest rate cuts are likely to play into the hands of solar energy companies such as those featured in TANN, but this may take some time to come to fruition and a lack of support from the Republican party may supress growth in the sector.

DRUG Global Healthcare ETF – Currency Hedged – After a strong first 8 months of 2024, DRUG peaked at 17% total returns until the end of August.  Structural tailwinds due to an ageing population and a number of regulatory approvals this year have spored growth-like properties from the typically defensive healthcare sector.  However, September and October have seen a drop in performance with poor results from drug trials, disappointing Q3 earnings releases, and the potential for healthcare cuts under a Trump administration.

Elevance Health was the biggest detractor from the fund’s returns, taking a 14% fall after reporting earnings 13% lower than had been predicted.  The company also cut its full-year earnings outlook, adding to the negative sentiment and decline in the share price.

*Excludes short and geared funds, aside from currency.**Annualised for funds with more than 1 year’s performance history. 

1. Bloomberg

2. Morningstar Direct

3. Apollo Academy

4. Morningstar

5. Bloomberg

6. Atlantic Council

7. Google

8. Morningstar Direct

9. Fortune.com

10. Morningstar Direct

11. Trading Economics

12. Xoma

13. Mining

14. World-nuclear

15. Renewable-energy-industry