Reflecting on the previous quarter as markets move into the spooky season, the spectre of inflation defined ETF returns at both ends of the spectrum in Q3.
Leading the pack in Europe, exchange-traded commodities from WisdomTree targeting heating oil, crude oil and petroleum, gained between 30% and 43%. This came as unforeseen production cuts from Saudi Arabia deepened the supply-demand mismatch in oil.
While analysts forecast the cuts which started in July would end in October, the Gulf kingdom chose to extend restrictions to the end of the year. This saw November Brent Crude futures shoot up over 27% in Q3.
At the other end of the spectrum, continued hawkish messaging by the Federal Reserve prompted clean energy ETFs – and subsectors including EV charging, hydrogen and solar – to fall between 20% and 30% during the quarter.
High interest rates are a strong headwind against clean energy as they increase the costs associated with borrowing money for new projects. High rates also discount future cash flows for growth-stage companies.
This dynamic also caused pain blockchain ETFs, which fell between 20% and 25%.
Their situation also was not helped by yields on 10-year US Treasuries hitting a 16-year-high last week, taking the sheen off riskier allocations including crypto miners.
BlackRock steals a march in digital
Elsewhere, BlackRock continued its offensive into the European retail investor market by partnering with Lloyds Bank on an ‘ETF Quicklist’.
The new service singles out 16 BlackRock products from the 600 ETFs offered by Lloyds.
The ‘ETF Quicklist’ is designed to provide building blocks for clients to access through channels including an online regular investment plan starting from £20 a month.
It marks just the latest move by BlackRock to expand its digital reach to individual investors.
In 2023 alone, it has also partnered with fintechs Monzo and Revolut, and savings plan providers Scalable Capital and BUX.
It begs the question of whether the world’s largest asset manager is building an unassailable head start in digital distribution.
The bond buyer barbell
Finally, fund selectors are spreading their bets to deal with an increasingly uncertain outlook for bonds.
In Q3, investors poured €1.4bn into the iShares $ Treasury Bond 0-1yr UCITS ETF (IB01) and €914m into the Xtrackers US Treasuries Ultrashort Bond UCITS ETF (X0TD), according to data from ETFbook.
Hedging their bets at the other end of the curve, investors also allocated €1.2bn to the iShares $ Treasury Bond 20+yr UCITS ETF (IDTL).
Central banks continue to deliver ‘higher for longer’ rhetoric while many chose to pause rate hikes last month. CPI readings across developed markets also continue to fall.
Markets are now unsure whether inflation and economic activity will continue slowing down, facilitating rate cuts, or whether inflation will rear its head once again, forcing more restrictive policy.
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