NEW YORK, February 7, 2023 - With January behind us, it’s time to evaluate the exchange-traded funds (ETF) space to identify which categories thrived and which struggled.
According to Morningstar data, digital assets and crypto have made a strong comeback despite numerous challenges over the past year. In contrast, natural gas, palladium, and Turkish stocks faced difficulties.
Performance Overview
In January, there was a staggering 96 percentage point difference between the best- and worst-performing exchange-traded products. Returns ranged from a high of 59.8% to a low of -36%.
Top ETFs in January
The Top 12 best-performing ETPs for January were predominantly from the crypto universe. After a catastrophic year marked by significant losses and scandals such as the FTX fallout, 2023 has started on a positive note for the cryptocurrency world.
VanEck Crypto & Blockchain Innovators ETF A USD Acc (DAPP) led the pack, gaining 59.8%. This fund tracks the MVIS Global Digital Assets Equity Index, a concentrated benchmark of 20 names, aiming to reflect the global digital asset segment's overall performance. This includes companies involved in digital asset exchanges, payment gateways, mining operations, software services, and technology or services for digital asset operations. This return is particularly welcome after the ETF lost nearly 86% in 2022.
Bitcoin, the flagship cryptocurrency, rose 43% in January, reaching $23,150, although still far from its November 2021 record high of $68,990. The optimism is driven by expectations of a slowdown in interest rate hikes and potential purchases by large investors, known as whales.
On the regulatory front, progress is being made: following the EU’s approval of the MiCa bill, the UK government has outlined plans to monitor cryptocurrency market activities and promised robust regulation in response to market volatility.
12 Best Performing ETPs in January:
Bottom ETFs in January
The worst-performing ETFs in January were more varied, with instruments exposed to natural gas, emerging markets like Pakistan and Turkey, and palladium.
The natural gas market, in particular, faced significant setbacks. In the US Henry Hub market, to which dedicated ETFs are exposed, the spot value dropped from $3.52 to $2.65 per MMBtu (one million British thermal units) in January.
In Europe, an unusually mild start to the winter reduced demand. According to ICIS analysis center data, gas demand in European countries fell by 20% in the fourth quarter compared to the previous five years' average, bringing the price of gas on the TTF market to €56 per megawatt hour on January 16, close to September 2021 levels.
Palladium’s spot price dropped 11% in January. This industrial metal has been in a bearish phase since October 2022, affected by the rise of electric vehicles, which do not require palladium and platinum like traditional combustion vehicles.
Turkish stocks, which were the best-performing asset class in 2022, lost more than 10% in January, their steepest drop in 10 months. This is likely due to investors taking profits after Borsa Istanbul doubled in value last year.
Conclusion
January saw a remarkable resurgence in digital assets and crypto ETFs, while traditional energy commodities and emerging market equities struggled. As the year progresses, investors will closely watch these trends to inform their strategies in a volatile market environment.