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The U.S. stock market, which took a huge beating last year, bounced back strongly in the early weeks of 2023. Easing inflation, hopes of the Fed’s slower rate hike path and a reopening in China has been fueling a rally.
While the rally has been broad based, the laggards of last year, like technology and communication services sectors as well as growth and small-cap stocks, have been outperforming this year. The outperformance came on the back of investors’ flocking to the most beaten-down stocks, falling bond yields and market participants unwinding bearish bets against stocks.
As such, ETFs from these corners of the market — Valkyrie Bitcoin Miners ETF (WGMI - Free Report) , ARK Innovation ETF (ARKK - Free Report) , Roundhill MEME ETF , Janus Henderson Small Cap Growth Alpha ETF (JSML - Free Report) and Communication Services Select Sector SPDR Fund (XLC - Free Report) — are winning this year.
Most of the surge came on the bets that the Fed will soon wrap up its inflation-fighting campaign as inflation is cooling. The central bank lifted its benchmark interest rate by 0.25 percentage points to 4.5-4.75% in the latest meeting. A pause in interest rate increases is a positive for the technology and communication sector. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. Stocks like Meta Platforms (META), Netflix (NFLX) and Tesla (TSLA) are roaring this year after a miserable 2022.
Bitcoin, which lost nearly 65% of its market value last year in its second-worst annual performance, also soared to $23,000 for the first time in the last six months. The largest digital currency by market value is up 30.4%. The turnaround in the cryptocurrency and technology market has bolstered the meme rally in 2023. Some meme stocks like MicroStrategy, Coinbase, AMC Entertainment, and Peloton have been exhibiting solid rallies in the first few weeks of this year (read: Bitcoin ETF Wins in January: 5 Best Stocks).
Additionally, falling inflation will likely push consumer spending higher, resulting in a boost to small caps. Americans have been regaining confidence in the U.S. economy, with consumer sentiment in early February jumping to its highest level in 13 months, per the latest University of Michigan's consumer survey. The latest round of economic data suggests that the economy is resilient and might avoid recession if the activity continues to grow.
As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. Further, they are considered safer and better plays if political issues or economic turmoil creep into the picture as the pint-sized stocks generate most of their revenues from the domestic market.
We have profiled the above-mentioned ETFs in detail below:
Valkyrie Bitcoin Miners ETF (WGMI - Free Report) – Up 74.9%, Last Year Down 67.4%
Valkyrie Bitcoin Miners ETF is an actively managed ETF providing exposure to the bitcoin mining industry WGMI invests at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining.
Valkyrie Bitcoin Miners ETF holds 24 stocks in its basket and charges 75 bps in annual fees. It has amassed $5.8 million in its asset base while trading in an average daily volume of 37,000 shares.
ARK Innovation ETF (ARKK - Free Report) – Up 25.3%, Last Year Down 67%
ARK Innovation ETF is an actively managed fund investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. In total, the fund holds 29 securities in its basket, with some concentration on the top three firms.
ARK Innovation ETF has gathered $7.8 billion in its asset base and charges 75 bps in fees per year from investors. It trades in a volume of 25 million shares per day on average (read: Will 2023 be the Year of Cathie Wood ETFs?).
Roundhill MEME ETF – Up 22.6%, Last Year Down 63.1%
Roundhill MEME ETF is the first ETF globally explicitly designed to track the performance of meme stocks. It follows the Solactive Roundhill Meme Stock Index, which consists of equal-weighted U.S. listed equity securities that exhibit a combination of elevated social media activity and high short interest. Roundhill MEME ETF holds 25 stocks in its basket, with none making up for more than 5% share.
Roundhill MEME ETF has gathered $1 million in its AUM and charges 69 bps in annual fees. It trades in a volume of 4,000 shares a day on average.
Janus Henderson Small Cap Growth Alpha ETF (JSML - Free Report) – Up 14.6%, Last Year Down 29%
Janus Henderson Small Cap Growth Alpha ETF seeks to provide risk-adjusted outperformance by identifying top-tier small-cap companies with some of the strongest fundamentals that can deliver sustainable growth in a variety of market environments by tracking the Janus Henderson Small Cap Growth Alpha Index. It holds 191 stocks in its basket, with key holdings in information technology, healthcare, industrials and consumer discretionary (read: 5 Small-Cap ETFs Outperforming Russell 2000).
Janus Henderson Small Cap Growth Alpha ETF has been able to manage assets worth $79.3 million and trades in a lower volume of 12,000 shares a day on average. It charges 30 bps in annual fees and has a Zacks ETF Rank #3 (Hold).
Communication Services Select Sector SPDR Fund (XLC - Free Report) – Up 14.5%, Last Year Down 37.7%
Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services, and has accumulated $9.6 billion in its asset base. It follows the Communication Services Select Sector Index and holds 25 stocks in its basket. About 42.8% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two.
Communication Services Select Sector SPDR Fund charges 10 bps in annual fees and trades in an average daily volume of 6 million shares. It has a Zacks ETF Rank #3.
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ETF Laggards of 2022 That Are Leading This Year
The U.S. stock market, which took a huge beating last year, bounced back strongly in the early weeks of 2023. Easing inflation, hopes of the Fed’s slower rate hike path and a reopening in China has been fueling a rally.
While the rally has been broad based, the laggards of last year, like technology and communication services sectors as well as growth and small-cap stocks, have been outperforming this year. The outperformance came on the back of investors’ flocking to the most beaten-down stocks, falling bond yields and market participants unwinding bearish bets against stocks.
As such, ETFs from these corners of the market — Valkyrie Bitcoin Miners ETF (WGMI - Free Report) , ARK Innovation ETF (ARKK - Free Report) , Roundhill MEME ETF , Janus Henderson Small Cap Growth Alpha ETF (JSML - Free Report) and Communication Services Select Sector SPDR Fund (XLC - Free Report) — are winning this year.
Most of the surge came on the bets that the Fed will soon wrap up its inflation-fighting campaign as inflation is cooling. The central bank lifted its benchmark interest rate by 0.25 percentage points to 4.5-4.75% in the latest meeting. A pause in interest rate increases is a positive for the technology and communication sector. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. Stocks like Meta Platforms (META), Netflix (NFLX) and Tesla (TSLA) are roaring this year after a miserable 2022.
Bitcoin, which lost nearly 65% of its market value last year in its second-worst annual performance, also soared to $23,000 for the first time in the last six months. The largest digital currency by market value is up 30.4%. The turnaround in the cryptocurrency and technology market has bolstered the meme rally in 2023. Some meme stocks like MicroStrategy, Coinbase, AMC Entertainment, and Peloton have been exhibiting solid rallies in the first few weeks of this year (read: Bitcoin ETF Wins in January: 5 Best Stocks).
Additionally, falling inflation will likely push consumer spending higher, resulting in a boost to small caps. Americans have been regaining confidence in the U.S. economy, with consumer sentiment in early February jumping to its highest level in 13 months, per the latest University of Michigan's consumer survey. The latest round of economic data suggests that the economy is resilient and might avoid recession if the activity continues to grow.
As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. Further, they are considered safer and better plays if political issues or economic turmoil creep into the picture as the pint-sized stocks generate most of their revenues from the domestic market.
We have profiled the above-mentioned ETFs in detail below:
Valkyrie Bitcoin Miners ETF (WGMI - Free Report) – Up 74.9%, Last Year Down 67.4%
Valkyrie Bitcoin Miners ETF is an actively managed ETF providing exposure to the bitcoin mining industry WGMI invests at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining.
Valkyrie Bitcoin Miners ETF holds 24 stocks in its basket and charges 75 bps in annual fees. It has amassed $5.8 million in its asset base while trading in an average daily volume of 37,000 shares.
ARK Innovation ETF (ARKK - Free Report) – Up 25.3%, Last Year Down 67%
ARK Innovation ETF is an actively managed fund investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. In total, the fund holds 29 securities in its basket, with some concentration on the top three firms.
ARK Innovation ETF has gathered $7.8 billion in its asset base and charges 75 bps in fees per year from investors. It trades in a volume of 25 million shares per day on average (read: Will 2023 be the Year of Cathie Wood ETFs?).
Roundhill MEME ETF – Up 22.6%, Last Year Down 63.1%
Roundhill MEME ETF is the first ETF globally explicitly designed to track the performance of meme stocks. It follows the Solactive Roundhill Meme Stock Index, which consists of equal-weighted U.S. listed equity securities that exhibit a combination of elevated social media activity and high short interest. Roundhill MEME ETF holds 25 stocks in its basket, with none making up for more than 5% share.
Roundhill MEME ETF has gathered $1 million in its AUM and charges 69 bps in annual fees. It trades in a volume of 4,000 shares a day on average.
Janus Henderson Small Cap Growth Alpha ETF (JSML - Free Report) – Up 14.6%, Last Year Down 29%
Janus Henderson Small Cap Growth Alpha ETF seeks to provide risk-adjusted outperformance by identifying top-tier small-cap companies with some of the strongest fundamentals that can deliver sustainable growth in a variety of market environments by tracking the Janus Henderson Small Cap Growth Alpha Index. It holds 191 stocks in its basket, with key holdings in information technology, healthcare, industrials and consumer discretionary (read: 5 Small-Cap ETFs Outperforming Russell 2000).
Janus Henderson Small Cap Growth Alpha ETF has been able to manage assets worth $79.3 million and trades in a lower volume of 12,000 shares a day on average. It charges 30 bps in annual fees and has a Zacks ETF Rank #3 (Hold).
Communication Services Select Sector SPDR Fund (XLC - Free Report) – Up 14.5%, Last Year Down 37.7%
Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services, and has accumulated $9.6 billion in its asset base. It follows the Communication Services Select Sector Index and holds 25 stocks in its basket. About 42.8% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two.
Communication Services Select Sector SPDR Fund charges 10 bps in annual fees and trades in an average daily volume of 6 million shares. It has a Zacks ETF Rank #3.