Blockchain, Japan, AI ETFs Shined in 2Q

Crypto-related ETFs have generated eye-popping returns so far this year.

etf
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Reviewed by: Lisa Barr
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Edited by: Lisa Barr

LONDON – Blockchain equity ETFs continued their hot streak in the second quarter of 2023 with Japan and artificial intelligence-led strategies also topping performance charts.

The crypto-related ETFs have generated eye-popping returns so far this year as risk-on assets continued to drive performance over the quarter while performance was boosted in June on the news BlackRock filed for a spot bitcoin ETF with the Securities and Exchange Commission (SEC).

US-tech stocks also performed strongly over the quarter as the hype around AI hit frenzied levels, driven by Nvidia’s Q1 results.

Meanwhile, Japan’s headline Nikkei 225 index hit a 30-year high in June as investors looked to the world’s third-largest economy following a series of banking stocks and the concentrated tech rally in the US. 

Blockchain Shines

The Brazilian stock market has also made impressive gains over the quarter as banks take advantage of the high-interest rate environment. The top-performing ETF this quarter is the VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP), returning 55.6% in the three months to the end of June.

DAPP has shot the lights out so far this year, returning 151.9% in H1, buoyed by signs that inflation could be cooling. However, it is cryptocurrencies that have helped take the ETF to new heights, tracking names such as Black and Coinbase.

The latter is up 36.1% in the month to 4 July, and a remarkable 137.9% this year, as enthusiasm builds for the possible approval of a spot bitcoin ETF in the US. Coinbase has been front and centre of the rally after BlackRock named it as a surveillance partner on its bitcoin ETF application.

While DAPP is the top performer, other ETFs have also benefitted including the Global X Blockchain UCITS ETF (BKCG) and the WisdomTree Blockchain UCITS ETF (BKNC), which have returned 45.8% and 32.5% over the quarter, respectively.

AI Frenzy

The AI boom has helped tech-focused ETFs to somewhere near the opt of the performance charts this year.

This was driven by stocks such as Nvidia, which rose almost 47% in the three months to the end of June, following stronger than anticipated Q1 results, which saw sales of $7.2bn versus forecasts of $6.5bn and net income of $2bn ahead of $1.5bn predictions.

The stock was boosted further after it announced several new AI-related products.

This pushed the Invesco Nasdaq 100 UCITS ETF (EQQQ) to returns of 20.1% for the quarter while the iShares S&P 500 Information Technology Sector UCITS ETF (IITU) and the Amundi MSCI Semiconductors ESG Screened UCITS ETF (SEMG) soared 18.9% and 18.8%, respectively.

However, investors chasing the tech rally now face big questions about whether they see it continuing into the second half of the year.

Japan in Vogue

Elsewhere, Japan ETFs also topped the charts as the country’s stock market reached levels not seen since the 1990s.

Relatively strong economic data – GPD growth for Q1 was upgraded to 0.7% – while sticky inflation from a market that has had a persistently low inflation problem has turned investors’ heads.

As a result, the WisdomTree Japan Equity UCITS ETF GBP Hedged (DXJP) was the top-performing product, jumping 23% in Q2.

This was followed by the Xtrackers MSCI Japan ESG Screened UCITS ETF GBP Hedged (XDNG) and the Amundi JPX Nikkei 400 UCITS ETF Daily Hedged (JPHG) which returned 20.7% and 20.5%, respectively.

Furthermore, the strong performance of the pound in recent months has helped push the sterling-hedged products higher.

A special mention should also go to Brazilian equities, which despite declining commodity prices have been buoyed by its financial sector as its banks take advantage of higher interest rates, with the Amundi MSCI Brazil UCITS ETF (BRZ) and the Xtrackers MSCI Brazil UCITS ETF (XMBR) returning 19.7%, respectively.

[This article originally appeared on ETF Stream.]

Theo Andrew joined ETF Stream as a senior reporter in September 2021. He has over four years of investment writing experience spanning pensions and retail investments, most recently at Citywire, where he was a senior reporter covering environmental, social and governance investing.