As the Fed launches its first rate hike in four years, Chinese ETFs explode and uranium funds implode
Happy Thursday! Another turbulent week in the markets and energy-focused ETFs and single-country equity funds have been at the center of volatility in recent sessions. Some funds went almost literally nuclear, while China’s Internet-indexed exchange-traded vehicles enjoyed a rebound. We’ll talk about that this week.
This all happened against the backdrop of the Federal Reserve’s first interest rate hike since 2018, with the promise of tougher policy on the horizon. Farewell, the days of easy money.
Either way, this may be my last week handling ETF Wrap on a regular basis (although I may make the occasional guest appearance).
Please tweet any tips or comments to Christine Idzelis at @cidzelis and find Mark at @mdecambre or LinkedIn to let us know what you think.
Rosenbluth leaves CFRA
Todd Rosenbluth left CFRA to become Director of Research at ETF Trends, replacing Dave Nadig. Rosenbluth was a key contributor to ETF Wrapwhile responsible for mutual funds and ETFs at CFRA.
Nadig said he was “super excited” to have Rosenbluth on board.
The Fed and ETFs
On Wednesday, the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point, as widely expected, and outlined plans for a more aggressive strategy of “continuous increases” in the coming months to fight against high US inflation.
Inflation is at a 40-year high and Fed Chairman Jerome Powel has a big task ahead of him. The Fed is abandoning two years of easy money policy that dampened the economy during the pandemic.
The Fed now sees its key rate rise to 1.9% by the end of this year, rising to 2.8% in 2023 and remaining at that level in 2024. Rates at 2.8% would start to slow economic growth , according to the Fed’s calculations.
What does this mean for ETFs?
We’ve written extensively on the subject, but a rising interest rate environment is one in which banks could thrive, due to their business models of borrowing short and lending longer.
Analysts pointed to the Financial Select Sector SPDR Fund XLF,
and the SPDR S&P Regional Banking ETF KRE,
and the SPDR Bank ETF KBE,
like solid bets. All of these funds are up on the week so far.
But it could be hard work for banks if the so-called yield curve inverts. Learn more about it here.
Commodities ETFs shine
Commodity-linked ETFs are enjoying a moment in the sun as investment flows pick up steam amid fears the Russian-Ukrainian war could disrupt supply and push prices even higher .
“The category received the 2nd highest number of entries since the Russian invasion of Ukraine (just behind Treasuries), and we also note over $15 billion in entries on
the last two months mark one of the strongest historical readings we can find,” writes Todd Sohn, a researcher at Strategas.
ETFs go nuclear
Although the price of uranium has risen, ETFs pegged to it have not fared as well.
MarketWatch’s Myra Picache notes that uranium prices have risen about 40% since Russia’s invasion of Ukraine, reaching levels the market hasn’t seen in over a decade, even if war has little immediate impact on the global supply of fuel used to generate nuclear power. energy.
Prices for the radioactive element were at $59.75 a pound on March 10, according to data from nuclear fuel consultancy UxC, marking the highest levels since March 2011.
ETFs, on the other hand, have faded this week. After a rally, the NorthShore Global Uranium Mining ETF fell significantly during the week, as did the Global X Uranium ETF. Both funds are higher month-to-date and year-to-date, up at least 5% on the month and at least 11% so far in 2022, respectively.
Much of the interest in uranium is tied to climate change commitments, as nuclear energy is a reliable source of energy that produces zero greenhouse gas emissions.
Very Happy Chinese ETF Day
Internet ETF KraneShares CSI China soared on Wednesday, posting its best daily gain in its history, as China pledged to support its economy.
A China-focused segregated fund, the iShares MSCI China ETF MCHI,
which has nearly $6 billion in assets, also climbed Wednesday to its best day on record, since its inception in 2011.
The rally came as Beijing said it would work to stabilize China’s stock markets and boost economic growth in the first quarter with “concrete actions”, according to the official Xinhua news agency.
Learn more here.