A review of today's most interesting ETFs

02.08.2023 15:28|Analyst Team, Conotoxia Ltd.

In today's investment world, we have access to a huge variety of areas, everything at our fingertips. Of course, it is not possible for us to take advantage of all the opportunities the market offers us. Let us therefore concentrate on those that have an interesting structure and show prospects for growth in the near future. Let us also look at the factors that influence the growth of a particular fund.

Interest rates and inflation

Although inflation in the US appears to be approaching its 2% target (it is currently falling in the vicinity of 3%), the next expected interest rate cut, according to the CME FedWatch tool, is likely to be in May 2024.The tool assesses this based on futures pricing.

Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html

Falling interest rates have a particular impact on rising bond valuations, which have to adjust their yields to the new economic conditions. Historically: the longer the maturity of a bond, the more sensitive the bond was to drastic changes in interest rates (known as duration). For this reason, rate regulation could affect the iShares 20+ Year Treasury Bond ETF (TLT). It covers US Treasury bonds with a long maturity, meaning that they have a maturity of at least 20 years from the date of issue.

US Treasury bonds are considered one of the safest assets in the market. They are issued by the US government and their credit risk is considered to be very low. Long-term government bonds are often sought after by investors who are looking for safe assets and stable interest income.

Source: Conotoxia MT5, TLT, Daily

High confidence among consumers

It turns out that - looking at the CB Consumer Confidence index readings - confidence among US consumers has almost returned to pre-pandemic levels. This means that they are increasingly willing to declare their willingness to make more purchases and are less worried about their financial future.

Source: https://www.conference-board.org/topics/consumer-confidence

Rising consumer confidence affects the listing of companies in the consumer goods sector, which are often (for this very reason) referred to as cyclical. An example of an investment fund that allows you to invest in this type of company is the Consumer Discretionary Select Sector SPDR Fund (XLY). The consumer discretionary sector includes companies that offer goods and services that are considered luxuries or necessities when consumers have a heightened ability to spend money (known as whim spending). Examples of such companies include those in retail, entertainment, tourism or car manufacturers. Currently, with declining inflationary concerns, recurring GDP growth rates and rising consumer confidence, there appears to be an ideal environment for consumer goods companies.

Source: Conotoxia MT5, XLY, Daily

The growing energy infrastructure of the United States

Investment in US transmission infrastructure, particularly in the pipeline transport of hydrocarbons, also appears to be an interesting option. Given the continued growth and steady consumption of energy, especially gas, by the United States, an investment in transmission infrastructure seems to have growth potential, with limited risk due to possible commodity fluctuations.

Source: https://www.eia.gov/energyexplained/us-energy-facts/

An investment in the ALERIAN MLP ETF Alerian Fund (AMLP) provides access to the MLP Infrastructure index, created by Alerian. It specialises in analysing and creating indices for the energy industry. The index focuses on MLP energy infrastructure companies that transport, store and process energy commodities such as oil and natural gas. Investing in the ALERIAN MLP ETF allows investors to participate in the performance of these energy infrastructure-related companies. This fund allows diversified exposure to the energy industry and appears to be an interesting alternative to benefit without the risk of commodity price fluctuations. Nevertheless, it appears to be largely cyclical, and therefore, as with the consumer goods industry, may gain in value as economic expectations improve.

Source: Conotoxia MT5, AMLP, Daily

Momentum investing

The iShares Edge MSCI USA Momentum Factor ETF (MTUM) is a specific investment fund that is linked to the idea of a momentum strategy. The momentum strategy for this fund is to buy stocks of companies that have shown strong price increases in the past and avoid stocks that have fallen in price. The fund regularly adjusts its portfolios to reflect changes in market momentum.

Investors who believe in a continuation of rising share prices with strong momentum may consider investing in this fund. However, when looking at the historical performance of the fund, one can see that it is not significantly different from the S&P 500 index. Paradoxically, despite this, the S&P 500 index has shown greater price growth in recent times.

Source: Tradingview

Technology companies from China

The global race related to artificial intelligence has begun, and one of the most active participants in this race is China. They have clearly declared their ambitions and want to lead this market by 2030. While they are aiming for AI dominance, they face a number of challenges that could limit their potential. Regulations governing AI in the country can limit the development of the technology, and various economic and political factors can make it difficult to generate profits from AI products. Nevertheless, according to data from the World Intellectual Property Organization (WIPO), China is the frontrunner when it comes to the number of patents filed in the computer technology sector.

Source: https://www.wipo.int/en/ipfactsandfigures/patents

An example of an indirect investment in Chinese companies linked to the development of artificial intelligence is the KraneShares CSI China Internet ETF (KWEB). It is worth noting that investing in companies in the internet sector in China, involves currency, political and regulatory risks.

Source: Conotoxia MT5, KWEB, Daily

The global war on semiconductors

The development of AI technologies requires enormous computing power, which is provided by the use of semiconductors. Semiconductors are important components in the production of electronic devices and technologies such as computers, smartphones, electronic circuits or even cars. Their importance for the development of AI technologies is enormous. The semiconductor sector has been growing rapidly for many years, which can be seen in the increasing number of new orders, and this is essential for the further development of AI technology.

Source: https://en.macromicro.me/collections/4345/mm-semiconductor/59247/global-semiconductor-billings-single-month

The iShares PHLX Semiconductor ETF (SOXX) allows investors to participate in the potential share price appreciation of US-based semiconductor companies. However, it is worth noting that this sector is often considered cyclical, meaning that its performance can be linked to economic cycles. The current decline in orders appears to be the result of an economic slowdown, which has recently been confirmed by indicators such as GDP, falling inflation and rising consumer sentiment. These suggest a change in the stage of the cycle from a slowdown to a recovery.

Source: Conotoxia MT5, SOXX, Daily

Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.03% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.