The performance of thematic exchange-traded funds last year may have some rethinking the thesis going forward, but Defiance ETFs CEO Sylvia Jablonski is not among them.
Her company, launched in 2018, makes long-term thematic bets on tech, like its flagship fund, the Defiance Quantum ETF (QTUM), which focuses on quantum computing. The ETF, which has $102 million in net assets, is up 4.73% this year, but down 23% in 2022, according to ETF.com data.
To be fair, thematic funds had a rough year, with many thematic names among the 20 worst-performing funds of 2022. In December alone, total assets under management for thematic ETFs dropped 41.7% from $129.4 billion a year ago, according to a recent report by Global X Research.
Defiance ETFs managed an average of $1.2 billion in assets in 2022, compared to $1.5 billion the year before.
Jablonski explained why she hasn’t changed her mind about thematic investing on the latest episode of ETF.com’s Exchange Traded Fridays podcast.
“It's not lost on me that it's very difficult to go in and buy a tech stock with so much uncertainty in the short term about whether or not we'll have a recession,” Jablonski said. “I like the idea of value creation in down markets—this is probably a pretty good spot to buy low if you're thinking about selling beyond 2024.”
Despite the tech names’ performance last year, she also remains confident about her fund’s long-term thesis and bet on innovation across a range of industries.
“The way I view the market is that this is painful noise, but I continue to believe technology is going to drive the next decade of the markets,” she added. “What's unique about thematic ETFs is that a large amount of [them] tend to express themes on things that have to do with disruption and technology in the future, and a lot of the companies that make up those types of themes and beliefs tend to be high growth tech companies.”
Despite how QTUM has performed to date, Jablonski is optimistic about the outlook for the industry.
“A lot of people think this is a way-out-there thing, but quantum computing exists in some form already. You have companies like IBM and Google that have already invested heavily into this for the last 10 years, and they now have these machines that they’re already testing that essentially run a trillion times faster than a regular computer would,” she said.
‘Massive Bounce’ on China Reopening
Since China’s reopening was overshadowed by surging COVID-19 rates, Jablonski projects a real reopening effect is to come.
“What happened was China reopened, but then there's this setback, right with these massive COVID rates again, so it's not a real reopen,” she noted. “I think that over the course of the year, you're going to see a massive bounce in a lot of global companies that rely heavily on Chinese retail buyers. Investors are going to look to allocate assets to China to large cap stocks to some of the popular names that we know, but also to international brands, luxury brands and things like that.”
She believes ETFs like KraneShares CSI China Internet ETF (KWEB) will continue to lure investors seeking exposure to China.
Hydrogen, as an alternative energy source and one of the most abundant elements, is another big theme her fund, the Next Gen Hydrogen ETF (HDRO), is betting on long term.
“I think people are just starting to learn about it, but it's a theme that's going to play out over the next decade,” she said. “And I don't think it's one of those things that going to take a decade to see your ROI.”
Although Jablonski highlighted increasing innovation in transportation, such as hydrogen-powered buses, planes and ships, her HDRO ETF doesn’t currently offer investors exposure to the transportation sector.
“As the space develops, absolutely, with every index rebalance, as something becomes relevant to the space and to the end investor, it sort of fits the methodology that we're aiming for; you might start seeing some of those names pop up in there, but they're just sort of not mature enough, not big enough or liquid enough at this point.”
Still, she believes HDRO can become the next Invesco Solar ETF (TAN) in terms of grabbing ESG-focused investors’ attention in the next few years.
Defiance ETFs remains bullish on travel and global reopening as well.
The firm’s Defiance Hotel, Airline, and Cruise ETF (CRUZ) offers exposure to a range of travel-related industries.
“I do think that, airlines, cruises, hotels, a lot of these spaces, particularly the spaces that are going to be related to China and even Europe in terms of being a little bit further behind us and taking a little bit longer to recover—a lot of the reopening stories are going to really continue to boost those,” Jablonski noted. “If you look at the CPI number, we still see a little bit of that inflation in that space, but the consumer remains strong, jobs remain strong and people still have that pent-up energy and [are] willing to get out there and travel.”
CRUZ is up over 11% year to date, although it declined 19% over the past year.
Contact Daria Solovieva at [email protected]