The maturing of the Australian ETF market means ETF issuers need to get more creative in their listings, finding themes, trends and strategies that attract investor funds. We take a look at the thematic ETFs on the ASX and develop our fund wishlist.
As the Australian ETF market matures, there are only so many traditional index weighted ETFs available for product issuers to target. Whilst there are still a few gaps (where’s the ASX listed FTSE ETF?), we expect new issues of these types of ETFs to further decline. This means ETF issuers need to get more creative in their listings, finding themes, trends and strategies that attract investor funds.
One of the most exciting developments in ETFs over the last couple of years has been the emergence of a range of thematic ETFs. We categorise these ETFs that target a specific market theme or niche. Below we take a look at the thematic ETFs currently available on the ASX and what we’d like to see the ETF issuers launch this year.
Depending on how you categorise thematic ETFs, there’s anywhere from 10 – 30 thematic ETFs available on the ASX. We’ve categorised it as niche sectors and have excluded those ETFs focused on large sectors like infrastructure and property or those focused on specific attributes like high dividend yield or low volatility. We’ve also excluded physical commodity and fixed income ETFs.
There’s 14 funds in the above list, we hope the names of them explain the theme or niche each targets, with reasonably large sectors like technology, financials, energy and resources well represented, as well as more niche themes like agriculture, cybersecurity and robotics. Whilst the list is reasonably comprehensive, we think there’s more themes Australian investors would love access to. We take a look at these below.
Without a doubt one of the growth industries of the last 20 years, individuals and governments around the world are seeking to reduce their carbon footprint, with renewable energy the primary enabler to support this. Often passed around as a political hot potato, the sector’s fortunes are somewhat out of their own hands, however as the technologies mature, the case for renewables improves both from an environmental and commercial perspective.
There’s a number of ETFs focusing on this theme in the US, with some targeting certain types of renewables (eg solar, wind), and others covering renewables more broadly.
Critics of renewable energy have long argued that the sun doesn’t always shine and wind doesn’t always blow. Battery storage is the obvious solution to this, and driven partly by Elon Musk and his Tesla battery, battery discussion is now in the mainstream. The core component of Lithium Ion batteries is readily available in Australia, as a result a mini boom in lithium explorers and miners is currently underway. Miners are just one part of the battery value chain, with material refiners, manufacturers and retailers all part of the story. We’d love to see an ETF that allows believers in this technology to invest in the entire value chain.
The Global X Lithium and Battery Tech ETF is available in the US and does exactly this. At over $1b US in size, it shows there’s a market for an ETF focusing on this. Interestingly Global X has just been bought by Betashares part owner Mirae Asset Global Investments, so we may see a local version sooner rather than later.
Throughout history humans have attempted to avoid the inevitable ageing process. From potions to creams and paleo diets, there’s a million and one options out there. There’s a growing band of scientists in the world focusing on anti ageing technologies that promise to extend human life by decades. A recent Fairfax article discusses some of the possibilities in this space. Perhaps we’ve been watching too much Black Mirror but we’d love to see an ETF available to allow us to invest in this theme.
Regardless of whether technology gets us to living to 150, if there’s one thing for sure its that the world’s developed nations are facing into an ageing population, with improvements in health care seeing life expectancies increase. The need for retirement homes, health care services, retirement income products and cruise ship liners shows no signs of abating.
Like many of the themes discussed today, ETFs of this nature exist in the much larger US market, with iShares offering an ETF which focuses on the aging population with the aptly named ticker, AGED.
Possibly only behind Bitcoin and Lithium, 2017 was the year of the medical marijuana company. Relaxation of the laws around medical marijuana use and supply in Australia have seen a raft of companies startup, promising to capitalise on some aspect of the medical marijuana supply chain. Smallcaps.com.au reports 22 listed Cannabis stocks on the ASX. With the Federal Government recently opening the door for exportation of medical cannabis and Federal Health Minister, Greg Hunt stating that “We would like to be, potentially, the world’s number one medicinal cannabis supplier” there’s no doubt this isn’t just a flash in the pan.
Whilst medical use is the local use case, legalisation of recreational Cannabis use in some states of the US and Canada will bring many medical marijuana companies to an inflection point, of whether to remain focused on the medical use case which there is no doubt significant benefit to the patients who require it or pivot to the recreational use case which is much larger (and therefore likely more profitable) but will likely tar the companies with the same brush as big alcohol and tobacco companies.
There’s a range of Marijuana ETFs available in the US and Canada. Whilst not an ETF, US rapper and renowned recreational user, Snoop Dogg even has his own Cannabis venture capital firm investing in Cannabis startups.
This list would not be complete without a special mention to 2017’s most hyped investment, Bitcoin, Cryptocurrency and Blockchain as a whole. We won’t be drawn into the merits of cryptocurrency as an investment, however it is one that is perfectly suited to an ETF. Like Gold, cryptocurrency is reasonably difficult to trade and securely store, so it makes sense to be able to buy units in a fund and let the ETF provider take care of all of that. Of course that is a simplistic way to look at is as the provider still faces the same issues as direct investors of slow settlement times and risks of their crypto wallets being hacked. The recent launch of Bitcoin futures contracts possibly removes some of these risks, although there are concerns about their liquidity.
As the hot asset class of 2017, not surprisingly there’s already been some attempts to get a Bitcoin ETF up and running. The Winklevoss brothers, once most famous for claiming they were the original inventors of Facebook and now most famous for using part of their payout from Facebook to become the first bitcoin billionaires (albeit for a brief period), tried to launch a Bitcoin ETF in the US. To date the US Securities and Exchanges Commission hasn’t approved any Bitcoin, Blockchain or other Cryptocurrency ETFs but there are a number of applications currently sitting with them. Once launched in the US we think the local ETF providers will be keen to jump on board.
There we have our short list of thematic ETFs we’d like to see on the ASX. Are there any you’d like to see? Let us know in the comments below.