Did My Thematic ETF ‘Blow Up’?
Thematic ETF investing has gained in popularity in recent years, with products focusing on cybersecurity, artificial intelligence, robotics and marijuana among those that have generated the most interest.
While the uranium investment case is less well-known, two products with a focus on the alternative, nuclear energy, highlight the importance of digging into holdings rather than being surprised by performance swings.
The Global X Uranium (URA) is the larger but more expensive ETF of the duo, with $257 million in assets and a 0.69% expense ratio. However, URA declined 22% in 2018, significantly underperforming the 14% loss for the Vanguard Total International Stock Index ETF (VXUS). Now, before you give up on the prospects of nuclear energy, let’s look at the smaller, but cheaper VanEck Vectors Uranium+Nuclear Energy (NLR). NLR rose 5% in 2018, much stronger than URA.
Tables source: CFRA, January 25, 2019
From a holdings perspective, there are notable differences in these similar-sounding funds. Approximately half of NLR’s assets were invested in U.S. companies, while URA focused exclusively outside of the U.S.
Meanwhile at the sector level, more than 90% of NLR’s assets were invested in utility stocks. URA has less than 1% in this sector, and instead held considerably more energy assets (40% vs. 5% for NLR).
Such exposure differences further affected returns to start 2019. URA has recovered to rise 8.5% year-to-date through Jan. 25, easily exceeding the 0.9% return for NLR. In 2018 and thus far in 2019, the performance gap was much wider than the 8 basis point spread between the expense ratios.
CFRA’s ETF research combines holdings-level analysis with fund attributes including the expense ratio. We think investors should continue to ask questions about the ETFs they have under consideration, and we’re hopeful that our tools, as well as the cool ones on ETF.com such as the ETF.com stock finder, can provide important answers.
This article was originally published on MarketScope Advisor on Jan. 28, 2019. Visit https://newpublic.cfraresearch.com/ to gain access. At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him on Twitter @ToddCFRA.