Bring on the “Future” Trade

By: Spencer Israel

A look at the top-performing non-leveraged ETFs of 2021 reveals one commonality: the future is now. 

Investors are piling into stocks and funds that offer exposure to emerging technologies and industries. Look at the top 10 best-performing (non-leveraged) ETFs of the year. Six are cannabis funds, one is a blockchain fund, one is a 3D printing fund, and one is literally called the “Moonshot Innovators” ETF. 

Source: ETFdb.com; Data as of Feb. 14

The outlier of the group is the Breakwave Dry Bulk Shipping ETF, though it should be noted that BDRY is also the only one of the 10 to have net outflows this year.

Other funds at the top of the year-to-date performance and flows charts include funds with exposure to a wide variety of “shiny object” industries, including robotics, AI, clean energy, esports, e-commerce, space, and the ARK Invest family of actively managed growth tech funds. In fact, the ARK Invest family of funds took in over $8 billion in January, ranking second only to Vanguard in terms of issuers. 

For these future-focused investments, sentiment could not be more bullish.

In cannabis, for example, investors seem to be buying partly because of the industry’s sweeping legislative victories on election day and partly to front-run the SAFE Banking Act and potential legalization at the federal level. 

The Amplify Transformational Data Sharing ETF (BLOK) is benefitting from what appears to be a shift in how institutional investors view cryptocurrency. Top holdings like MicroStrategy, Marathon Patent Group, and Riot Blockchain are all up more than 150% in 2021 as Wall Street’s largest banks and institutions prepare to enter the space. Canada even approved the first true bitcoin ETF last week

Of course, we all know this won’t last forever. And as is usually the case with any high-flying trade, the rip-roaring rally is interspersed by periods of extreme volatility. Take what happened last week, when the six cannabis ETFs above fell 16-30% in the span of two days. 

There will come a day when this trend ends, and other factors—be it value, defensive, or low-beta—will rule the day. But for now, traders and investors seem content to buy into the future, regardless of if that day ever comes. 

The author is long the S&P 500 in his retirement accounts.

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