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Top 50 ETFs 2022: Niche ETFs

Our selection of niche ETFs for 2022
July 7, 2022
  • We go through some of the best specialist options
  • The list contains some commodity options and some thematic plays

NICHE ETFS

COMMODITIES AND PRECIOUS METALS (2 ETFS)

An inherently volatile asset class, commodities have come into their own in the past year, delivering huge gains as prices rise and investors continue to fret about further inflation. ETFs remain a straightforward way to get such exposure, although the way in which these funds access commodities means they won't always track spot prices precisely.

Invesco Bloomberg Commodity UCITS ETF (CMOP)

Sitting on a one-year return of nearly 50 per cent at the mid-point of 2022, this fund will certainly have bolstered some portfolios in challenging times. It continues to tick the right boxes in terms of being large and cheap enough, with a cost that comes to 0.34 per cent once a swap fee is accounted for. The fund uses futures to provide relatively broad commodity exposure, from energy to grains, industrial metals, precious metals, soft commodities and livestock. As we mentioned last year, its gold exposure gives it a small level of overlap with the next name on the list.

Invesco Physical Gold ETC (SGLP)

Movements in the gold price seemed fairly restrained in the uncertain early days of 2022, but the safe-haven asset has acquitted itself pretty well more recently. Our chosen gold product has returned 11.5 per cent in the first half of 2022 – not a bad result against the backdrop of falling equity markets.

As the IC’s Alex Hamer recently argued, recession fears could continue to stoke demand for gold in the coming months. Whatever your rationale for holding the metal, we continue to view this fund as a good way to do so. To repeat our list’s common mantra, it’s large, liquid and comes with a competitive fee of 0.12 per cent. The word 'competitive' certainly applies here – gold ETF providers have been in a fierce price war for several years, and Invesco has continued a trend of cutting its fees. To illustrate this, the fee was 0.15 per cent when we compiled 2021’s list, 0.19 per cent in 2020’s list and 0.24 per cent in the 2019 edition.

We stick with this fund, but should note the very limited differences between it and the rival iShares Physical Gold ETC (SGLN). They have a similar, enormous level of scale and charge the same fee for the time being.

 

THEMATIC (4 ETFS)

A much-hyped part of the ETF market during the pandemic, thematics have attracted investors in their droves in recent years. Unfortunately, a tendency to focus on growth stocks and the likes of US tech has left many exposed to the full brunt of the recent sell-off.

We had plenty of reservations about thematics before the recent turn in markets: many specialists, including our panellist Peter Sleep, worry that such funds can dive into a “hot” market just as sentiment, and prices, are peaking. We also worry that some are overly concentrated, while others investing in a nascent theme end up holding stocks only tangentially related to a fund’s remit. As one example, Sleep cites cannabis ETFs buying the likes of fertiliser company shares. Such funds can require a huge amount of due diligence, both when you first invest and throughout the holding period.

That said, thematics can fill a gap in portfolios and do allow investors to target interesting niches. As a compromise, and in recognition of their popularity, we stick with a very short list of funds targeting themes that look interesting over the long term. As previously mentioned, we will also publish a separate feature later this month to highlight the themes and funds currently exciting our expert panel.

iShares Automation & Robotics UCITS ETF (RBTX)

Down by nearly 30 per cent over a six-month period, this fund is a good example of the sell-off tearing through the thematics space. But while it is unsurprisingly exposed to the problems being suffered by growth investors and US tech, the fund continues to target a noteworthy theme. It’s reasonably priced for a thematic product at 0.4 per cent, has billions in assets and is diversified across around 160 holdings, none of which made up more than 1.3 per cent of assets in late June. Around half the portfolio was in US shares, with a 15 per cent allocation to Japan.

As with other sectors, funds like these can have overlap with more mainstream global and US funds, as well as technology funds. It’s also worth conducting substantial due diligence, keeping an eye out for any changes to the underlying index methodology, and comparing the fund with its rivals. One of our panellists continues to prefer an L&G rival to this fund, in part because of the regular due diligence the provider itself carries out on the holdings in its thematic ETFs.

iShares Ageing Population UCITS ETF (AGES)

While sitting on some not inconsiderable losses, this fund has been much less badly hit than those thematics with more of a tech focus. Importantly, it focuses on a trend that should significantly affect companies over time, and drive returns for those invested in the right areas.

Investment themes like these can be open to interpretation, meaning funds may differ from a buyer's expectations in terms of what they hold. This might be a case in point: the fund, which recently had nearly 400 holdings, did have a substantial healthcare allocation as some might expect, accounting for about half of its assets. But other sector allocations might surprise, particularly the fund’s 36.4 per cent weighting to financials. In terms of geography it’s fairly heavily weighted to the US, which made up 52.3 per cent of assets.

To turn to the fund’s remit, it looks to hold companies that “specifically provide products or services to the world’s ageing population”, and this ranges from pharmaceuticals companies to insurers and consumer discretionary businesses. It’s a relatively broad interpretation of the theme, but that does dilute any sector-specific risk. This is another large fund and comes with a 0.4 per cent price tag.

iShares Global Clean Energy UCITS ETF (INRG)

The poster child of the thematic ETF world, we decided to stick with this fund last year after liquidity issues triggered an overhaul of its underlying index. As we argued last year, big changes to the fund that included a significant increase in its target number of holdings make it more liquid and diversified. It remains a controversial fund, but a popular one with an appealing long-term theme.

It’s worth noting that the fund operates in a relatively crowded space: a handful of clean energy ETFs exist, as do more targeted plays such as hydrogen economy ETFs. Active options exist too, presenting plenty of choices for investors interested in the theme.

One separate gripe about this fund relates to its price: a 0.65 per cent fee feels pretty steep for such a large ETF, even if it is a specialist product.

iShares Digitalisation UCITS ETF (DGIT)

With its focus on digitally focused services in developed and emerging markets, this still strikes us as a fund with a durable theme. The fund recently had 218 holdings and invests in all manner of companies, from parcel delivery names to cyber security businesses, payment processing giants and most of the Faang stocks. But unsurprisingly it does have a bias to both the tech sector and the US.

We continue to like the theme behind this fund, as well as its size and 0.4 per cent fee. But as with other tech-minded thematics, do consider the risk of doubling up on the same holdings if you also use the likes of global, US or technology funds.