The year 2020 as a whole could easily be attributed to the
COVID-19 outbreak, the resultant lockdown and economic sufferings, but some
real relief came in the fourth quarter. Back-to-back positive vaccine updates
and Joe Biden’s win with a divided Congress (so far assumed) boosted markets in
November.
The winning spree continued in December with Trump’s signing
of the second round of a virus stimulus deal. Overall, Wall Street is hovering
at record highs with global markets too moving along. The S&P 500, the Dow
Jones and the Nasdaq Composite added about 14.6%, 6% and 41.8%, respectively,
in the past one year (as of Dec 31, 2020).
This is the situation in which we are entering 2021 and can
see some important ETF trends are emerging with full force.
Oil Prices Likely to Remain Range Bound Despite Vaccine
Rollout
Several factors including OPEC’s output decision and shale
production will rule the oil market in 2021. As of now, shale output is rising
with falling costs of hydraulic fracturing or “fracking,” and rising commodity
prices.
Per a Forbes article, a recent survey by the Dallas Federal
Reserve reported that shale firms needed less than $30 a barrel in most fields
to make up for their operating expenses for existing wells. Companies could
operate profitably in West Texas’ Permian basin for less than $40 a barrel,
including drilling costs. With the current $48-oil price, we think those
companies may beef up production in 2021.
On the other hand, Iran is planning to sign agreements worth
$1.2 billionto boost the nation’s crude output. OPEC and Russia also agreed to
increase oil output by 500,000 barrels per day(BPD) in January. All these
factors may result in higher oil output and could put pressure on prices even
in a scenario of demand recovery. United States Oil Fund LP USO and United
States Brent Oil Fund LP (BNO) should be closely tracked.
Bitcoin Likely to Rule in the First Half: An ETF in the
Offing?
The price of Bitcoin has been on a tear lately. It crossed
the $20,000-mark for the first time on Dec 16 and is trading above $34,000 at
the New Year. Bitcoin soared about 200% last year. Institutional interest has
led to this buoyancy. The currency “will be on the road to $50,000probably in
the first quarter of 2021,” said Antoni Trenchev, managing partner and
co-founder of Nexo in London, one of the world’s biggest crypto lender, as
quoted on Yahoo Finance.
Sergey Nazarov, the cofounder of Chainlink, said a few days
back that “rising inflation and increasingly negative views of modern monetary
policy are forcing investors to look for alternative ways to preserve the value
of their capital,” as quoted on Businessinsider.
Corporations’ greater acceptance in allowing customers to
hold bitcoin and other virtual coins in their online wallets and several
central banks’ intention of rolling out digital currencies have been favoring
the cryptocurrency. In fact, a bitcoin ETF could finally see the day of the
light in 2021 as VanEck filed an application with the SEC lately. Notably, the
SEC had earlier rejected several bitcoin ETF proposals, including an effort
from VanEck.
Investors can definitely familiarize with the concept of
bitcoin through blockchain ETFs like Amplify Transformational Data Sharing ETF
(BLOK). ETFs offering exposure to the blockchain ecosystem via semiconductor
companies that make chips for bitcoin mining (or could make for some potential
CBDCs) can be played. The most-popular funds include iShares PHLX Semiconductor
ETF (SOXX) and VanEck Vectors Semiconductor ETF (SMH).
U.S.-China Tensions Not to Cool Down Soon
U.S.-China ties soured a lot in the Trump era. Even a Biden
era might not give respite to the tensions.The New York Stock Exchange started
delisting three Chinese telecom firms – China Mobile, China Unicom and China
Telecom – that Washington believes as having military ties. China looks to
resort to "necessary measures."
Analysts expectJoe Biden to adopt a multilateral approach in
dealing with China on tech and trade policies. China has already started
shifting its focus toward Europe having signed an investment deal. So, keep a close watch on the China ETFs like
iShares MSCI China ETF MCHI and iShares China Large-Cap ETF (FXI), though we do
not expect any slump in this fund category. China’s notable success in handling
the pandemic and solid growth in the field of automation and 5G will continue
to keep their assets rolling in 2021.
Expect a Bank Rally in 2021
A steepening yield curve and better economic environment
bode well for banks in 2021. The Fed has given America’s most profitable banks
the permission to resume share buybacks for the first quarter of 2021, even though
it noted that that the country’s biggest lenders could face pandemic-related
loan losses of more than $600 billion.
Soon after the Fed’s decision, JPMorgan Chase approved a new share
repurchase program of $30 billion. Bank ETFs like SPDR S&P Bank ETF KBE can
thus gain ahead. However, if we do not get a divided Congress, gains in bank
stocks may be restricted in the short term.
Volley of New ETFs on Technological Disruption May Come
On Line
The year 2021 will be more focused on areas like Artificial
Intelligence, Fintech, semiconductors and 5G. Globally, green infrastructure
and digitization would be of the top-most priorities. Key economies of the
world, the United States, the Eurozone and China – all will stay tuned to these
areas. In the auto industry, the emergence of self-driving cars could act as a
game changer. Most recently, we received a handful of new ETFs on these fields,
namely – Simplify Volt RoboCar Disruption and Tech ETF VCAR, Simplify Volt
Cloud and Cybersecurity Disruption ETF (VCLO) and Simplify Volt Fintech
Disruption ETF (VFIN).
Small Caps May Record Double-Digit Gains Again in 2021
The Russell 2000 Index outperformed the bigger equity gauges
by a wide margin as the pint-sized stocks ruled in Q4 of 2020. The
small-capitalization focused iShares Russell 2000 ETF IWM added 28.5% in the
past three months, breezing past three other big equity gauges. Overall, the
fund was up 18.3% past year.
Since small-cap stocks are more closely tied to the domestic
economy, stimulus hopes and vaccine news boosted the segment even more. The
trend is going to favor the segment throughout 2021 as economic recovery will
be in process. However, one should keep a close tab on the peaks and troughs in
new COVID-19 cases before investing in this area (read: Top ETF Stories of
Fourth-Quarter 2020).
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