ETF Wrap: ETF Wrap: Let’s get away from it all

What just happened?

Raise your hand if you’ve got a mean case of cabin fever.

After the past 13 months, of course you do! You want to see all the (other) things, go all the (different) places, and never take a conference call from the couch again.

We may have a new market regime for that. Travel-specific and, more important, restaurant-themed ETFs mostly haven’t taken off in the past. But now the stars are aligned. What once may have felt a little too niche is now the only thing most of us are thinking about.  And as of this week, there are two new ETFs for that.

Without taking a stand on whether or not an investment is a “good” pick or the “right” one for your portfolio (after all, ETFs get created for purposes of shorting certain assets, as well as going long), Wrap will be watching this launch — air travel pun intended — closely.

Will the investment thesis resonate? Or is it too soon? (Can there be such a thing as an ETF for living vicariously?)

We’ll leave you with Frank, and even if you don’t leave your hut, dear, we truly hope you aren’t in a rut. Thanks for reading.

Cleared for takeoff?

“Send more reopening ETFs!” Wrap implored in early March, noting how few funds pull together shares of travel, leisure, and entertainment companies for investors who think those companies will benefit as COVID vaccines roll out.

Ask and ye shall receive: Wednesday saw the launch of two ETFs perfectly suited for the moment. The AdvisorShares Hotel ETF

invests in the travel industry with a focus on hotels, and the AdvisorShares Restaurant ETF

is just what its name suggests.

AdvisorShares is “seeking to capitalize on the current environment, but there is a longer-term investment theme for both restaurants and hotels and leisure,” said Todd Rosenbluth. There are some successful travel-oriented ETFs, though none focused primarily on hotels, he noted, and previous attempts at restaurant-themed funds have failed. “There’s not a lot of white space in the ETF community,” Rosenbluth told MarketWatch. “There are thousands of products and not a lot of untapped areas but this captures two of them.”

The craze for funds that will capitalize on the reopening theme will likely help AdvisorShares catapult past the thorny first few hurdles for new funds, such as gathering enough assets, Rosenbluth said. It’s also likely that these funds will appeal to some investors who want to diversify their consumer discretionary holdings, which tend to be skewed toward a few giant names, such as Inc.

and Tesla Inc

The two new funds will be actively managed, which Rosenbluth thinks is a boon for industries that are changing rapidly, both organically and because of the changes brought about by COVID-19. EATZ, for example, includes food delivery companies like Doordash Inc.

and Grubhub

that likely weren’t around for the previous attempts at restaurant funds. BEDZ includes Airbnb Inc.
a company that’s only been public for about four months and isn’t yet part of a broad stock benchmark.

“The beauty of the active-management component is that management has discretion to shift based on consumer demand, whether from fast food to fast causal or even to sit-down dining,” Rosenbluth said.  

Exchange-traded sundries

Earth Day, April 22, will see the launch of the Invesco MSCI Green Building ETF
which Invesco says will be the first to focus on the “entire green building ecosystem,” with access to companies that “maximize their exposure to every step of the certified green building process — not just sustainable real estate, but all stages of construction, redevelopment, and retrofitting green-certified properties.”

Simplify, the developer of several options-based ETFs profiled by MarketWatch, has hired Michael Green as chief strategist. Green has held a number of senior roles in the asset management space, most recently at Logica Capital Advisers, LLC, and is a prolific researcher and writer, with a hefty Twitter following @profplum99.

Even as U.S. investors wait for news about a Bitcoin ETF, three ethereum ETFs launched this week in Canada: the Purpose Ether ETF
CI Global Asset Management’s CI Galaxy Ethereum ETF
and Evolve ETFs’ Ether ETF

Is there an ETF for that?

It’s not the sexiest investment suggestion you’ll hear for Earth Day, but two major investment managers have just turned bullish on the utilities sector — and there are plenty of ETFs for that.

“We see a favorable back-drop for solid performance, with inflation fears moderating, yields stabilizing, and utility beta continuing to tick down,” said JPMorgan analysts in an April 19 note. Utilities could also get a boost — not to mention some greening — from the White House’s proposed infrastructure plan.  

Analysts at Ned Davis Research agree. “Utilities could turn out to be a stealth green-energy play with stronger defensive characteristics than more traditional green energy equities,” they wrote.

While so-called bond proxies – safer sectors that produce income for investors – are usually at risk in rising-rate environments, NDR analysts think that might be less the case now than in previous cycles. Also, the current dividend yield for the sector, of 3.5%, is second-highest among the S&P 500 sectors, lagging only energy.

“The (utilities) sector has historically seen healthy gains when yielding more than 1% point above the 10-year Treasury yield,” NDR analysts wrote. On Wednesday, the 10-year Treasury note
yielded 1.566%.

The Utilities Select Sector SPDR Fund

is far and away the biggest utility ETF, with about $12.6 billion in assets. It’s followed by the Vanguard Utilities ETF,

which charges a few basis points less — 0.09%, as opposed to 0.12%. Among the more traditional utilities ETFs, the best performer this year is the First Trust Utilities AlphaDEX Fund
up 9.7% compared with XLU’s 7.1%.

The JPMorgan analysts offer a few of their favorite stock picks. Entergy Corp.,

which trades at a discount to competitors, is among them. “With renewables-driven upside to the current plan and an extended runway for renewables investment through 2030, we see the company entering a period of sustained renewables capex and expect an associated valuation lift from ETR’s increasing ‘green hue’,” they wrote. “Existing logistics assets appear to provide the company a meaningful head start in exploring hydrogen potential.”

The ETF with the biggest holding of the stock isn’t a traditional utility ETF at all: VanEck Vectors Uranium+Nuclear Energy

ETF, at 6.4%, followed by the John Hancock Multifactor Utilities ETF
at 3.9%, according to FactSet data.

JP Morgan analysts also like Dominion Energy Inc.
, writing, “In our view, D now represents a best-in-class, pure play regulated utility with attractive green growth plans.” NLR, the VanEck Vectors fund, has the biggest allocation to the stock, at 8.1% of the portfolio, followed by XLU. 

Visual of the Week
Weekly rap
Top 5 gainers of the past week
Breakwave Dry Bulk Shipping ETF
iShares MSCI Global Gold Miners ETF
Sprott Gold Miners ETF
VanEck Vectors Gold Miners ETF
VanEck Vectors Junior Gold Miners ETF
Source: FactSet, through close of trading Wednesday, April 21, excluding ETNs and leveraged products
Top 5 losers of the past week
VanEck Vectors Digital Transformation ETF
Amplify Transformational Data Sharing ETF
SPDR S&P Oil & Gas Equipment & Services ETF
Morgan Creek – Exos SPAC Originated ETF
Invesco S&P SmallCap Energy ETF
Source: FactSet, through close of trading Wednesday, April 21, excluding ETNs and leveraged products

MarketWatch has launched ETF Wrap, a weekly newsletter that brings you everything you need to know about the exchange-traded sector: new fund debuts, how to use ETFs to express an investing idea, regulations and industry changes, inflows and performance, and more. Sign up at this link to receive it right in your inbox every Thursday.

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