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The COVID-19 pandemic had a dramatic effect on many aspects of our daily lives in both pronounced and subtle ways. Many of us have spent the last several months working exclusively from home and face coverings are now more ubiquitous than ball caps. Drive-in movie theatres have made a comeback, while most of us probably can’t recall the last time we saw a movie trailer on television. Many of these changes have of course been reflected in the market, from the “stay at home” trade which gave rise to the Direxion Work From Home ETF (WFH) to the “recovery” trade. There are several investing themes that have found favor in this environment – some are directly related to COVID-19, while others are not. Today, we take a look at several of the best performing thematic ETFs of 2020.
Shopping Online vs. In-store
One strong performance that we can probably safely put in the COVID-19-related category is that of the ProShares Long Online/Short Stores ETF (CLIX). Year-to-date (through 7/27) the Fund has gained 64.07% (exclusive of dividends and potential transaction costs) while the SPDR S&P Retail ETF (XRT) is up just 1.43% over the same period.
CLIX combines a 100% long position in retailers that primarily sell online or through other non-store channels with a 50% short position in those that rely principally on physical stores. Investors have the opportunity to benefit from both outperforming online and underperforming physical retailers. The long/short structure also reduces equity market exposure and could potentially result in less volatility than long-only equity strategies (Source: ProShares). The Fund’s five largest long positions are Amazon (AMZN), Alibaba Group (BABA), Stamps.com (STMP), Overstock.com (OSTK) and Ebay Inc (EBAY) which have produced some truly gaudy performances in 2020. The Fund gains its short brick and mortar exposure via swaps on the Solactive-Proshares Bricks and Mortar Retail Store Index, an index composed of retailers who receive at least 50% of their revenues from retail operations, with 75% or more of that retail revenue coming from in-store sales.
The returns above are price returns and do not reflect dividends or potential transaction costs. Investors cannot invest directly in an index, like the SPX, and indexes do not have fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
After giving four consecutive Point and Figure buy signals and reaching an all-time high, CLIX pulled back slightly and broke a double bottom at $77 on its default chart in last week’s trading. The stock reversed up on Monday (7/27) and now sits at $80. The Fund has most recently found support at $76, with additional support at $66 and $64 and has a Nasdaq Dorsey Wright fund score of 4.84 out of a possible 6. It is worth noting that each of the Fund’s five largest holdings report earnings between today (7/28) and 8/13, when BABA is expected to report, so the next two weeks have the potential to see heightened volatility.
Acceleration of Video Games & eSports
The video game and eSports industry has seen major growth during the COVID-19 pandemic, as more consumers have gravitated to this more personal form of entertainment while in quarantine. This was shown through the increase in video game sales in the month of March alone, which saw a total increase of 63% for the week of March 16th through March 22nd when compared to weeks prior (source: statista.com). Like-for-like game sales, which compensates for newly released games by comparing sales of specific titles with sales in prior weeks, also saw a spike over this timeframe, jumping by 44%.
This thematic growth is also reflected in the price improvement of video game-related companies, as shown through the VanEck Vectors Video Gaming & eSports ETF (ESPO). This Fund seeks to track the performance and dividend yield of the MVIS Global Video Gaming and eSports Index, which maintains exposure to approximately 25 companies that derive at least 50% of their revenue from video gaming or eSports related endeavors (source: vaneck.com). As a global fund, three of the top ten holdings of ESPO come from direct investment in foreign companies, including Tencent (700-HK) and Nintendo (7974-TO). However, the Fund still maintains an overweight toward the US at over 34% of its exposure.
When examining ESPO from a technical perspective, we see that the strength of the Fund was on display prior to the COVID-19 pandemic, as it climbed to a new all-time high in February at $42.50 before declining alongside broader global equity markets in March to a 52-week low of $31. Since that time, ESPO has shown even more impressive growth, most recently climbing to give its second consecutive Point and Figure buy signal at $48 in June and pushing higher to a new all-time high at $56 earlier this month. Last week, ESPO experienced a slight pullback from these overbought levels to its current position at $53, although the Fund has still produced a year-to-date return of 44.57% (exclusive of dividends and potential transaction costs), vastly outperforming the 0.27% gain of SPX over the same timeframe. The recent 5.88 Nasdaq Dorsey Wright fund score posting of ESPO bests the average consumer cyclical fund score of 4.20, as well as the average all global equity fund of 3.35. Those looking to add exposure to the video game space may look toward ESPO on this near-term pullback, with initial support on the default chart found at $45. Further support can be found on the more sensitive ½ point chart at $53.50, $53, and $51.
Rebound of Initial Public Offerings
Another area that has been dramatically affected by the COVID-19 pandemic is the market for initial public offerings, or IPOs. According to MarketWatch, the two month span of April and May saw a 48% decline in fresh listings globally, attributing to a loss of 8% in global proceeds from IPOs during the first half of the year. However, the continued market rally has led to a drastic increase in companies that once again felt comfortable going public, as almost a third of the total IPOs for the first six months of the year took place in the month of June alone (source: marketwatch.com).
One fund that has benefited from this increase in listing activity is the Renaissance IPO ETF (IPO), which tracks an index that seeks investments from a customized inventory of newly listed companies that have been trading for no more than two years (source: renaissancecapital.com). Many of the current portfolio holdings are names that you may be familiar with, such as Uber (UBER) and Lyft (LYFT), which combine to make up about 10% of the Fund. The stock with the heaviest weighting in IPO is Zoom Video Communications (ZM) which makes up another 10% of the Fund itself and has been one of the names to benefit most from the global quarantine environment. Holdings like this helped the Fund move higher off an all-time low at $20.50 in March to give ten consecutive Point and Figure buy signals while climbing to $45 earlier this month, before shares backed off to give a sell signal last week. IPO has shown further improvement over the first few days this week, reversing back up into Xs Monday (7/27) and moving higher to current trading levels at $43 intraday Tuesday. This Fund possesses a favorable Nasdaq Dorsey Wright fund score of 5.03 out of a possible 6. Initial support is offered at $40.50 and further support found at $39.
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Dorsey, Wright & Associates, LLC, a Nasdaq Company, is a registered investment advisory firm. Registration does not imply any level of skill or training.
Unless otherwise stated, the performance information included in this article does not include dividends or all potential transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
ESPO is a Nasdaq-listed exchange traded fund. Nasdaq, Inc., Nasdaq Dorsey Wright’s parent company, has other subsidiaries that receive listing fees from investment vehicles listed on the Nasdaq Stock Exchange.
Nothing contained within the article should be construed as an offer to sell or the solicitation of an offer to buy any security, nor as a recommendation to engage in any transaction or participate in any strategy. This article does not attempt to examine all the facts and circumstances which may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this article. It is for the general information of and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation (express or implied), investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.