Interactive Investor

The ETF that has almost doubled in the last six months

19th October 2020 14:29

Douglas Chadwick from interactive investor

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This content is provided by Saltydog Investor. It is a third-party supplier and not part of interactive investor. It is provided for information only and does not constitute a personal recommendation.

An ETF that tracks the fortunes of 30 companies is shooting the lights out.

At Saltydog Investor, we analyse the performance of thousands of funds every week. Our main focus is on funds, but we also look at investment trusts and exchange traded funds (ETFs).

We believe that funds have several benefits. There are lots of them (more than 3,000), they are highly regulated and they are readily available through a range of fund supermarkets and platforms, including interactive investor. Funds also cover all sorts of different types of investments - gilts, bonds, mixed investments and equities.

The Investment Association places them in tightly defined sectors, so you know what the funds have to invest in. For example, funds in the UK smaller companies sector have to “invest at least 80% of their assets in UK equities of companies which form the bottom 10% by market capitalisation”. Fund managers cannot suddenly decide to jump ship and start investing in the large FTSE 100 companies, or chase potentially better returns overseas. Their job is to run funds investing in UK smaller companies and that is what they must do.

Because we can track the overall performance of the sectors, we can see which ones are doing well at any particular time, as well as which ones are struggling. This is the primary information that we need for our momentum-based investing system.

Having said all the above, investment trusts and ETFs do provide some interesting alternatives, I just do not think that they are always better.

If a sector such as UK smaller companies is performing well, then there will be funds, investment trusts and ETFs all investing in this area and they can each be judged on their own merit. Take, for example, the Standard Life UK Smaller Companies (LSE:SLS) trust, run by the highly respected fund manager Harry Nimmo, and compare it with the similar open-ended fund that he runs, Aberdeen Standard Investments UK Smaller Companies. The open-ended fund is actually ahead over one month, six months, one year, three years and five years. The investment trust only leads over three months. They both beat ETFs tracking either the FTSE 250 or the MSCI UK Small Cap indices.

One thing that we have found is that investment trusts and ETFs can give better access to certain sectors of the market. For ETFs, one example is commodities, in which products track the price of things like oil, gas, precious metals, industrial metals, cotton, coffee, and my personal favourite, lean hogs.

Our analysis of ETFs that invest in commodities found that the fund at the top of the table last week was iShares Global Clean Energy (LSE:INRG), which aims to replicate the S&P Global Clean Energy index. It has almost doubled in the last six months.

ISIN Provider Name 4 Week   12 Week   26 Week  
      Decile Return Decile Return Decile Return
IE00B1XNHC34 iShares Global Clean Energy 1 29.6% 1 45.2% 1 96.3%
GB00B15KXY63 WisdomTree Heating Oil ETC 1 5.8% 10 -10.0% 9 -0.6%
GB00B15KXW40 WisdomTree Gasoline ETC 1 9.5% 8 2.1% 1 53.4%
GB00B15KY658 WisdomTree Sugar ETC 1 10.9% 3 10.5% 3 20.9%
GB00B15KYL00 WisdomTree Grains DJ-UBSCI ETC 1 6.3% 3 10.7% 8 6.8%
GB00B15KY765 WisdomTree Wheat ETC 1 7.7% 5 5.0% 10 -1.2%

Data source: Morningstar

The S&P Global Clean Energy Index “provides liquid and tradable exposure to 30 companies from around the world that are involved in clean energy related businesses. The index comprises a diversified mix of clean energy production and clean energy equipment and technology companies.”

Clean energy is a hot topic, with Sir David Attenborough, Greta Thunberg, prominent scientists, the media and many government leaders getting behind and driving the fight against climate change.

At the recent virtual Conservative Party conference, Boris Johnson promised wind power for every home by 2030. As part of his plan to build back greener”, the government intends to quadruple offshore wind capacity so that all houses can be supplied by offshore wind farms. This is just the latest in a raft of initiatives designed to reduce carbon emissions and promote clean energy.

And it is not just in the UK. International pressure is mounting to encourage all countries to find more sustainable ways to generate power.

In the US, Donald Trump is a little more reticent, but the Joe Biden has already put forward his plan for “a clean energy revolution and environmental justice”. He has said that “getting to a 100% clean energy economy is not only an obligation, it’s an opportunity. We should fully adopt a clean energy future, not just for all of us today, but for our children and grandchildren, so their tomorrow is healthier, safer, and more just.”

The latest polls put Biden ahead of Trump, and if he does get into office, then that will give a further boost to the clean energy movement.

 

For more information about Saltydog, or to take the two-month free trial, go to www.saltydoginvestor.com.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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