Exchange-Traded Funds have for the better part for the past year been a bright spot in the vast equity markets. As investors sought to shrug off the effects of elevated volatility in the equity markets, most of them turned to ETFs. Fast forward, the once resilient segment of the equity market is starting to show cracks.
U.S ETFs Cracks
U.S ETFs have come under pressure in recent days amid a string of disappointing earnings results. Growing concerns over a spike in coronavirus cases in the U.S is also seen as one of the factors that have continued to rattle investors conversely fuelling sell-off in the ETF marketplace.
Invesco QQQ Trust (NASDAQ:QQQ) fell by 0.1%, as SPDR Dow Jones Industrial Average ETF (NYSEArca:DIA) tanked 0.3%, and iShares Core S&P 500 ETF (NYSEArca:IVV) fell by 0.2% as Intel and IBM reported disappointing quarterly results. IBM was one of the reasons the Dow Jones Industrial Average edged lower after missing estimates for quarterly revenues as the software unit came under pressure.
According to the head of asset allocation at Pacific Life Fund Advisors, the sell-off in the ETF market will be short-lived given that the market is only blowing off some steam. The broader stock market has taken a pause after a strong start to the New Year.
However, the deteriorating COVID-19 situation threatens to rattle the markets further. An increase in new cases of infection, amid new variants, is a point of concern as it comes at the back of a massive vaccination campaign.
Home Building ETFs Struggles
Likewise, the U.S housing sector has started feeling the pinch despite being one of the most resilient sectors the past year. The housing sector is being rattled by the aggravating COVID-19 situation made worse by rising lumber prices.
Limited inventory is already constraining robust growth in the one’s resilient home building sector of the economy. Inventory issues in the housing market have been compounded by land shortages, skilled labor deficiencies, as well as the rising costs of raw materials.
The worsening situation is already threatening to take a toll on homebuilders ETFs that have outperformed well over the past year. Some of the ETFs that could come under pressure on fundamentals in the housing market deteriorating include iShares U.S. Home Construction ETF ITB, SPDR S&P Homebuilders ETF XHB, and Hoya Capital Housing ETF HOMZ.
Housing ETFs are not the only ones eliciting concerns in the market. Academics are increasingly raising the red flag over the amount of losses that Thematic ETFs can generate as they have always underperformed the market by 4% points.
Thematic ETFs Warning
According to academics, thematic ETFs, which serve specialist investment interests such as biotechnology, renewable energy, and gender equality pose a significant risk as they underperform the market on average. Likewise, the higher fees they charge are not justified.
Separately, Mind Cure Health has been included as one of the 17 Psychedelic companies in the first-ever Psychedelic ETF. Horizon Psychedelic ETF is the new ETF on the block that includes Canadian and U.S companies with legal activities involving psychedelic drugs and substance.