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After a weak start to 2024, Wall Street regained momentum, with all three major indices near its all-time high. Notably, the S&P 500 topped 5,000 last week for the first time ever. A combination of factors, including a solid earnings season, a resilient economy and a technology surge, powered the rally.
Total fourth-quarter earnings of the 369 S&P 500 members, who have reported results so far, moved up 5.8% from the prior-year period on 3.6% higher revenues. Of the companies that reported results, 79.1% beat EPS estimates and 64.8% surpassed revenue estimates. The pace of earnings and revenue growth mirrors a modest acceleration from the recent quarters, with the technology sector being a major contributor to this improving trend (read: Should You Be Overwhelmed by Solid Q4 Earnings? ETFs to Play).
Notably, 5.8% earnings growth is the best growth rate for the S&P 500 companies since the 6.5% earnings growth rate in the first quarter 2022.
The resilience of the U.S. economy has played a crucial role in the S&P 500's ascent, although it has reduced the likelihood of a near-term rate cut. Factors like robust retail sales, consumer sentiment and a cooling trend in the producer price index indicate the possibility of the Fed achieving a soft landing, bringing inflation back to target without triggering a recession. This economic resilience, coupled with surging shares of big technology companies and optimism over artificial intelligence, has been a significant driver of the market's upward trajectory.
On the commodity side, gold lost its sheen on the delayed prospect of rate cuts.
Given this, we have highlighted three ETFs, each from the best and worst-performing zones in the middle of first-quarter 2024.
Bitcoin, the world's largest cryptocurrency, surged past the $52,000 mark for the first time since December 2021. This represents a gain of nearly 21% so far this year for the cryptocurrency, pushing its market cap back over $1 trillion. The surge primarily came on the back of the increasing movement of institutional money into the asset class (read: Spot Bitcoin ETFs Attract $10B in AUM in Less Than a Month).
Grayscale Bitcoin Trust is the world’s largest Bitcoin ETF that enables investors to gain exposure to Bitcoin in the form of security, while avoiding the challenges of buying, storing and safekeeping bitcoin directly. It owns and passively holds actual Bitcoins through the Custodian, Coinbase Custody. Grayscale Bitcoin Trust has an AUM of $22.1 billion and charges 1.50% in annual fees from investors. It trades in a volume of 26 million shares a day on average.
Interest rate hedge ETFs offer protection amid a rising rate environment. The bets that the Fed will cut rates anytime soon have been delayed due to bouts of strong data. Simplify Interest Rate Hedge ETF is the first ETF to provide a simple, direct and transparent interest rate hedge. It seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases, while providing the potential for income.
Simplify Interest Rate Hedge ETF holds a large position in over-the-counter interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility. It invests in long-dated put options on 20-year US Treasury bonds to offer the most liquid and the most cost-efficient way of getting interest rate protection. PFIX has accumulated $121.6 million in its asset base and trades in an average daily volume of 122,000 shares. It charges 50 bps in annual fees.
Cannabis stocks and ETFs have been on a surge since the US Drug Enforcement Administration started reviewing the potential reclassification of cannabis from Schedule I to Schedule III. This development, initiated by a recommendation from the Department of Health and Human Services, could potentially expand the marijuana market, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states (read: Cannabis ETFs: What's Behind the Latest Surge).
Roundhill Cannabis ETF is designed to offer concentrated exposure to the largest U.S. cannabis companies. The fund may invest in various cannabis-related companies, including cannabis producers and distributors, cannabis-related technology companies, and additional cannabis-related ancillary businesses. It offers precise exposure to five leading U.S. MSOs. Roundhill Cannabis ETF has gathered $7.1 million in its asset base so far. It charges 40 bps in annual fees and trades in 5,000 shares a day on average.
Amid the broad stock market rally, the appeal for low-risk ETFs has diminished this year. Simplify Tail Risk Strategy ETF seeks to provide income and capital appreciation, while protecting against significant downside risk to investors by hedging diversified portfolios against severe equity market sell-offs.
Simplify Tail Risk Strategy ETF has amassed $1.7 million in its asset base and charges 1.64% in annual fees from investors. It trades in a volume of 880,000 shares a day on average.
Electric Vehicles - Defiance Pure Electric Vehicle ETF ) – Down 30.1%
Electric vehicle makers have seen declines in their stock prices due to a plunge in Tesla (TSLA). Defiance Pure Electric Vehicle ETF is an actively managed fund that seeks to track the performance of a basket of common shares, which are equally weighted on a quarterly basis, of the five largest (by market capitalization) electric vehicle manufacturers included in the Solactive Pure US Electric Vehicle Index. It charges 68 bps in annual fees and trades in a light volume of 1,000 shares.
Lithium prices have crashed this year as a broader slowdown in the China economy took a toll on sales of electric vehicles in China. Sprott Lithium Miners ETF is the pure-play U.S.-listed ETF focused on lithium mining companies that are providing the critical mineral necessary for the clean energy transition. It follows the Nasdaq Sprott Lithium Miners Index, holding 45 stocks in its basket.
Sprott Lithium Miners ETF has gathered $4.4 million in its asset base and charges 65 bps in annual fees. It trades in an average daily volume of 11,000 shares.
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Best and Worst ETF Zones Through Halfway of Q1
After a weak start to 2024, Wall Street regained momentum, with all three major indices near its all-time high. Notably, the S&P 500 topped 5,000 last week for the first time ever. A combination of factors, including a solid earnings season, a resilient economy and a technology surge, powered the rally.
Total fourth-quarter earnings of the 369 S&P 500 members, who have reported results so far, moved up 5.8% from the prior-year period on 3.6% higher revenues. Of the companies that reported results, 79.1% beat EPS estimates and 64.8% surpassed revenue estimates. The pace of earnings and revenue growth mirrors a modest acceleration from the recent quarters, with the technology sector being a major contributor to this improving trend (read: Should You Be Overwhelmed by Solid Q4 Earnings? ETFs to Play).
Notably, 5.8% earnings growth is the best growth rate for the S&P 500 companies since the 6.5% earnings growth rate in the first quarter 2022.
The resilience of the U.S. economy has played a crucial role in the S&P 500's ascent, although it has reduced the likelihood of a near-term rate cut. Factors like robust retail sales, consumer sentiment and a cooling trend in the producer price index indicate the possibility of the Fed achieving a soft landing, bringing inflation back to target without triggering a recession. This economic resilience, coupled with surging shares of big technology companies and optimism over artificial intelligence, has been a significant driver of the market's upward trajectory.
On the commodity side, gold lost its sheen on the delayed prospect of rate cuts.
Given this, we have highlighted three ETFs, each from the best and worst-performing zones in the middle of first-quarter 2024.
Best ETFs
Bitcoin - Grayscale Bitcoin Trust (GBTC - Free Report) ) – Up 33.4%
Bitcoin, the world's largest cryptocurrency, surged past the $52,000 mark for the first time since December 2021. This represents a gain of nearly 21% so far this year for the cryptocurrency, pushing its market cap back over $1 trillion. The surge primarily came on the back of the increasing movement of institutional money into the asset class (read: Spot Bitcoin ETFs Attract $10B in AUM in Less Than a Month).
Grayscale Bitcoin Trust is the world’s largest Bitcoin ETF that enables investors to gain exposure to Bitcoin in the form of security, while avoiding the challenges of buying, storing and safekeeping bitcoin directly. It owns and passively holds actual Bitcoins through the Custodian, Coinbase Custody. Grayscale Bitcoin Trust has an AUM of $22.1 billion and charges 1.50% in annual fees from investors. It trades in a volume of 26 million shares a day on average.
Interest Rate Hedge - Simplify Interest Rate Hedge ETF (PFIX - Free Report) ) – Up 25.2%
Interest rate hedge ETFs offer protection amid a rising rate environment. The bets that the Fed will cut rates anytime soon have been delayed due to bouts of strong data. Simplify Interest Rate Hedge ETF is the first ETF to provide a simple, direct and transparent interest rate hedge. It seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases, while providing the potential for income.
Simplify Interest Rate Hedge ETF holds a large position in over-the-counter interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility. It invests in long-dated put options on 20-year US Treasury bonds to offer the most liquid and the most cost-efficient way of getting interest rate protection. PFIX has accumulated $121.6 million in its asset base and trades in an average daily volume of 122,000 shares. It charges 50 bps in annual fees.
Cannabis - Roundhill Cannabis ETF (WEED - Free Report) ) – Up 24.5%
Cannabis stocks and ETFs have been on a surge since the US Drug Enforcement Administration started reviewing the potential reclassification of cannabis from Schedule I to Schedule III. This development, initiated by a recommendation from the Department of Health and Human Services, could potentially expand the marijuana market, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states (read: Cannabis ETFs: What's Behind the Latest Surge).
Roundhill Cannabis ETF is designed to offer concentrated exposure to the largest U.S. cannabis companies. The fund may invest in various cannabis-related companies, including cannabis producers and distributors, cannabis-related technology companies, and additional cannabis-related ancillary businesses. It offers precise exposure to five leading U.S. MSOs. Roundhill Cannabis ETF has gathered $7.1 million in its asset base so far. It charges 40 bps in annual fees and trades in 5,000 shares a day on average.
Worst ETFs
Low Risk - Simplify Tail Risk Strategy ETF ) – Down 79.3%
Amid the broad stock market rally, the appeal for low-risk ETFs has diminished this year. Simplify Tail Risk Strategy ETF seeks to provide income and capital appreciation, while protecting against significant downside risk to investors by hedging diversified portfolios against severe equity market sell-offs.
Simplify Tail Risk Strategy ETF has amassed $1.7 million in its asset base and charges 1.64% in annual fees from investors. It trades in a volume of 880,000 shares a day on average.
Electric Vehicles - Defiance Pure Electric Vehicle ETF ) – Down 30.1%
Electric vehicle makers have seen declines in their stock prices due to a plunge in Tesla (TSLA). Defiance Pure Electric Vehicle ETF is an actively managed fund that seeks to track the performance of a basket of common shares, which are equally weighted on a quarterly basis, of the five largest (by market capitalization) electric vehicle manufacturers included in the Solactive Pure US Electric Vehicle Index. It charges 68 bps in annual fees and trades in a light volume of 1,000 shares.
Defiance Pure Electric Vehicle ETF has accumulated $1.7 million in its asset base (read: Tesla Slumps on Q4 Earnings Miss and Soft Outlook: ETFs in Focus).
Lithium - Sprott Lithium Miners ETF (LITP - Free Report) ) – Down 28.3%
Lithium prices have crashed this year as a broader slowdown in the China economy took a toll on sales of electric vehicles in China. Sprott Lithium Miners ETF is the pure-play U.S.-listed ETF focused on lithium mining companies that are providing the critical mineral necessary for the clean energy transition. It follows the Nasdaq Sprott Lithium Miners Index, holding 45 stocks in its basket.
Sprott Lithium Miners ETF has gathered $4.4 million in its asset base and charges 65 bps in annual fees. It trades in an average daily volume of 11,000 shares.