As I write, much of Europe is house-bound and the global economy is still reeling from the unprecedented impact of the Covid-19 virus and plummeting oil prices. The implications for the global economy are far from clear. That said, the lessons learned from previous crises are very clear: sit tight and wait it out: the storm will pass.
In 2019, Legal & General launched the first new water-themed ETF to be listed on the London Stock Exchange for 10 years.This new entrant undercuts its rivals on fees, but how else does it differ? Before we explore the differences, it is worth reminding ourselves of the thesis behind an investment in water.
When you invest in – for example – an S&P 500 ETF, you are tracking the movements of the US large-cap equity market, but you are also left at the mercy of the USD/GBP exchange rate.
This is not a trivial point. Since the Brexit vote in 2016, the pound has dropped 15% against the US dollar, boosting already strong US equity returns to UK-based investors.
Investors have historically paid for the privilege of incorporating ethical or environmental, social and governance (ESG) factors into their portfolios, in the form of higher management fees. However, this is changing. The average ongoing charge for an ETF that applies ESG values and/or screens in Europe has fallen year-on-year since 2012 from 0.55% to 0.36%, making them more attractive.
Artificial intelligence, orphan drugs and battery value-chains are just some of the attention-grabbing themes tracked by exchange traded funds launched this year. These join established themes such as robotics and water strategies. ETFs have become popular, but evaluating them and integrating them into an existing portfolio can be problematic.
ETFs that attempt to profit from a specific theme or global mega-trend have been among the surprise winners over the past couple of years. Of these thematic exposures, robotics has really caught investors’ imaginations. The two UK-listed ETFs providing equity exposure to the robotics and automation theme have collected assets under management of £3 billion, an eyebrow-raising sum.
So what advice should investors follow to make sense of and benefit from this hugely promising investment theme?
Technology stocks have been one of the key driving forces behind the global equity bull market over recent years. In fact globally, the technology sector has trounced all other sectors over the past three and five years. Even as tech stocks like Facebook, Apple and Alphabet (Google) tower over the US equity markets, the opportunities in emerging fields such as artificial intelligence and big data appear never to have been higher.
Here are some of the ETFs providing low-cost access to the Japanese market.
For investors considering a socially conscious ETF there are various pitfalls to avoid, says Kenneth Lamont.
Passive investing works better in some areas than others. Kenneth Lamont selects Morningstar-rated ETFs for effective exposure in three such sectors.