Caution dominates ETF trading. The lower levels of tech stocks, for example, go unnoticed. Equity indices are also sold. But the industry is in a positive mood.
3 January 2023. Frankfurt (Börse Frankfurt). At the turn of the year, ETF investors take little risk. The sell lists are longer than the buy pages. Nevertheless, the industry is optimistic about the future. Some positive trends from the old year are likely to continue - both in sectors and products. For example, bond ETFs remain in focus in the environment of rising interest rates, while the regional focus is on Asia. Sustainability remains an integral part of the sector mix. However, new angles are conceivable in the course of the year.
Energy remains a topic - for the time being
The topic of energy, one of the most important of the old year, is initially also one of the continuing movers in 2023: "With the high energy prices, we expect investors to continue to focus on this segment," reports Andreas Schröer of Lang & Schwarz. In the course of the year, sector rotations are conceivable, depending on the market situation. "A return of tech stocks, especially semiconductors, cannot be ruled out." Then ETFs such as the VanEck Semiconductor (IE00BMC38736) could be in greater demand again. Currently, however, investors* are still holding back here.
Asia is coming back
Depending on the development of the Corona policy in Asia, this region could become interesting, according to Lang & Schwarz. "Then a China ETF could make sense," Schröer explains, pointing to one of the big ETFs for this region, the iShares MSCI China (IE00BQT3WG13), which has lost almost a quarter of its value over the year.
Amundi is also confident about the Asian region. Vincent Mortier and Matteo Germano expect China to gradually reopen in 2023. "We remain neutral and are ready to re-enter when fundamental earnings data and economic growth are more assessable."
Products that were already popular in 2022 are likely to remain in demand: "On the product side, we expect the trend toward leveraged ETFs that we already observed at the end of 2022 to continue." Schröer reports that the WisdomTree NASDAQ 100 3x Daily Short (IE00BLRPRJ20) is among the most traded products at Lang &S Schwarz.
More and more savings plans - good signal
"We also see that volumes in savings plans are increasing," Schröer continues to report. "We also saw this trend at the beginning of 2022." The fact that market participants* are staying invested shows that they are taking a longer-term view, he adds. "That's a good sign."
Frank Mohr of Société Générale also reports inflows into savings plans. His firm also expects this to continue. "We believe we will see inflows here in 2023 and beyond." In addition, Société Générale expects general market interest rates to continue to rise, with a corresponding impact in bond ETFs. "We expect 2023 to be a fixed-income year because interest rates will resume." Bond products will play an important role, with attention focused on the Fed's decisions." However, he said, it is still important for investors* to find a balance between return and risk.
Mohr
Bonds remain - but equities retain main role
The market consensus is that bonds will remain attractive until interest rates peak. "Bonds are on the rise again, market valuations are becoming more attractive, and a swing by the FED in the first half of the year could create interesting entry points," Mortier and Germano comment.
Equities, however, would continue to dominate ETF trading, according to Mohr. "Even after a difficult year for equities in 2022, equities will play the main role in the ETF market." Sustainability will remain an issue, according to Mohr's expectation. "It's not a fashion trend. We see, for example, with the MSCI World, that about a third of it is already in demand as an ESG variant." As energy prices rise, however, oil and gas ETCs remain in demand, according to Mohr. But the trend toward greater sustainability is driving investment in the energy sector, he said. Consumer behavior is also noticeable as a trend, he said: "Here, the catch-up effects and the shocks in the auto industry or travel industry that have been overcome may play a role."
Overall, the experts expect a good year for the ETF industry, even if things are likely to remain turbulent at first. "2023 will be a two-speed year, with many risks to watch out for," Mortier and Germano summarize. On the equity side, they say earnings expectations are still high in the U.S., given two influencing factors - slowing growth and a dollar that continues to strengthen. In Europe, he said, the situation is also difficult, where corporate profit margins and consumption need to improve. Amundi is therefore looking for opportunities in value stocks, quality, dividends and small companies, especially in the US.
Current trading: Low volumes
In current day trading, rising prices continue on low volume. Schröer reports that even the latent recovery in tech stocks has failed to stimulate ETF trading recently. "Investors have taken the risks out completely." Mohr reports 60 percent volume compared to regular trading. "There's a slight selling overhang, which doesn't even stop at global index trackers, which account for 55 percent of turnover." But Europe is also selling, he said, which is most noticeable in the iShares Core EURO STOXX 50 (DE0005933956).
Health care instead of technology
Among sectors, technology is being dumped first and foremost. "In line with the market situation, the majority is selling here," Mohr summarizes. The large-cap iShares Digital Security (<IE00BG0J4C88) is therefore on the sell lists. In contrast, capital is flowing into the second-strongest sector, healthcare, benefiting iShares Healthcare Innovation (IE00BYZK4776) and Xtrackers MSCI World Health Care (IE00BM67HK77). Energy is also on the buy side. Leading the way here is the SPDR MSCI Europe Energy (IE00BKWQ0F09), which focuses on Europe, he said.
In any market situation, however, green energy is the most heavily traded theme at his firm, Mohr reports further. "Even in a subdued trading week like currently, iShares Global Clean Energy is heavily traded." The ETF (IE00B1XNHC34) had fallen to €8.45 when the Ukraine war broke out in February 2022, and then rose to €13.36 by mid-August. Over the year, it is up one percent, and over three years, it is up a good 76 percent.
Bond ETFs: Sovereigns instead of corporate bonds
In a quiet trading session for bond ETFs, interest in government bonds rather than corporate securities stands out. "We are seeing demand focused on longer maturities of U.S. government bonds and European paper," Mohr reports. Purchases include Lyxor Core US Treasury 10+Y (LU1407890620) and Amundi US Treasury 7-10 Y (Acc) EUR-Hedged (<LU2153616169>). With a focus on Europe, shorter maturities are in demand, so the Eurozone Government Bond 1-3 Y (LU0290356871) is added to the portfolio.
Equities | |
World | sales |
Equities Europe | sales |
Technology | sales |
Health | purchases |
Energy | purchases |
Fixed Income | |
US-Treasuries 7-10 years | purchases |
Europ.Goverment bonds 1-3 years | purchases |
from: Antje Erhard, 3 January 2023, © Deutsche Börse AG
Antje Erhard is a journalist and presenter specializing in the stock market, business and finance.
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Erhard