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Tech innovation will shape outlook for ETF investment: study

Tech innovation will shape outlook for ETF investment: study

Investors look set to benefit from a wave of innovation across various sectors, a research paper from ETF Securities has claimed.

The five-page paper cited important advances in energy technology as well as developments in biotechnology as examples of this.

It said: “These benefits will come at a cost. For those not fortunate enough to share in the gains of the new economy, the revolution may as well be happening somewhere else.

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“Entire economies are at risk of being destabilised in countries that rely on advanced manufacturing and on services-sector jobs.”

The paper said Japanese equity remained the company’s top developed-market equity pick, but renewed euro weakness should support eurozone equities.

It said: “The euro’s recent strength strikes us as a temporary result of US dollar weakness triggered by softer-than-anticipated US GDP data.

“We expect euro weakness to return in subsequent months – a trend that will favour Italy and Germany over France and Spain.”

But the paper added that developed-market easing and the probability of delayed Fed rate hikes support emerging-market assets, with opportunities for ETFs in countries with attractive valuations and stable or improving macro fundamentals, such as Mexico and Poland.

Top-performing commodity and energy based ETFs over three years. Source: FE
PositionETF%
1Direxion - Daily Basic Materials Bull 3x Shares212.19
2Guggenheim - Solar ETF175.07
3Market Vectors - Solar Energy131.44
4Market Vectors - Global Alternative Energy122.93
5Daiwa - TOPIX-17 Steel & Non Ferrous Metals111.92

Meanwhile, investors putting their money into commodities-based exchange-traded products should beware of the impacts of El Niño, the paper said.

Meteorologists are predicting that an El Niño event – a complex weather pattern affecting the equatorial Pacific region – is likely in the second half of this year, which would be the first time the phenomenon has taken place since 2009.

Kenneth Lamont, passive funds analyst with Morningstar, said: “There are logistical problems with trading directly in the underlying commodity. The fund itself cannot very well store a thousand tons of grain and trade this daily.

“So in order to gain the underlying exposure, the fund trades in the highly liquid futures market and they roll these to maintain exposure through time.”

He said that one of the most popular agricultural commodities funds, based on recent inflows, was the ETF Securities Agriculture ETC (AIGA) product, with a total holding cost of 99 basis points.

Adviser view

Andrew Reeves, director of Northamptonshire-based The Investment Coach, said: “The investor who knows which countries and sectors will do well would be very rich indeed. Seriously, the best thing for any investor to do is to be well-diversified across the areas that do well, as well as across areas that are perhaps currently not performing so well.”