Speculative Growth ETFs Make a Comeback in 1Q

It’s a stretch to say they’re back in favor, but some of the most speculative, volatile pockets of the market that crashed and burned in 2022 have put up impressive returns during the first quarter of 2023. 

The Roundhill MEME ETF (MEME) is up 27% since the start of the year. The ARK Innovation ETF (ARKK) is up by 23%. The Valkyrie Bitcoin Miners ETF (WGMI) is up by 96%. And the Roundhill Ball Metaverse ETF (METV) is up by 27%.  

YTD Returns  

All of those ETFs were pummeled in 2022, with losses ranging from 50% to 85%, so even this year’s solid advances only put those funds back to where they were trading late last year. Still, gains are gains, and it raises the question of whether growth, or even speculative growth, might continue to thrive this year. 

Though nothing is impossible, it’s hard to imagine that the excesses of 2020 and 2021 will return anytime soon. But even a more modest upswing could result in solid returns for investors, as this year’s first quarter results show.  

A More Favorable Rate Environment  

A key reason for the resurgence of speculative growth stocks this year is the decline in long-term interest rates. The Fed raised its benchmark federal funds rate to nearly 5% earlier this month, but the 10-year Treasury bond yield briefly dipped to 3.37% last week, matching its low for the year set in January. 

If rates continue to decline—perhaps because inflation comes down or because the economy weakens—that could increase the appeal of growth stocks, supporting some of the previously mentioned ETFs. 

On the other hand, after being burned so badly in 2022, investors will likely be more discerning when it comes to which growth ETFs and growth stocks they invest in. 

Even in a more benign interest rate environment, not all growth stocks will necessarily thrive. Once the easy gains are exhausted, we could see more differentiation between the performance of these ETFs. 

Meme stocks, which were a 2020-2021 bubble phenomenon, might perform worse than metaverse stocks, a category that includes big, profitable tech companies.  

Source: ETF Comparison tool 
 

Email Sumit Roy at [email protected] or follow him on Twitter @ sumitroy