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Recording date: 24th October 2022
I get carried away with the more technical side of trading (options, warrants, futures options, etc.) and forget that some members prefer a more passive approach with little, to no ,single stock risk. So that is what I will go over in today's show, "what would I have in my portfolio if I could only own ETFs?"
The ETF that looks to have the best risk-reward here is OIH, the VanEck Oil Services ETF, which looks great both fundamentally and technically. With oil CAPEX picking up, utilisation rates hitting levels where day rates will start to run and the technicals confirming it with a nice clean breakout.
The Horizon Kinetics Inflation Beneficiaries ETF is next on the list. While I don't expect this to be a crazy outperformer, the construction of this ETF makes sense to me. James Davos framework of quality capital-light businesses, such as royalty companies, brokerage/exchanges and commodity trading houses, stand to do well in multiple inflation situations. "The Fund focuses on businesses with the potential to earn high cash flows under moderate inflation scenarios, but markedly higher under certain rising inflationary conditions. This portfolio is intended to benefit from inflation (i.e. appreciate), NOT just maintain value in an inflationary environment."
Next is Sprott Physical Uranium Trust (yes, I know it's not an ETF but close enough), which I've historically used as my hurdle rate. The move from the fifties to hundred dollars a lb (adding a hefty dose of cost inflation to incentive price) is still a solid return for minimal risk. Sprott Uranium Miners ETF is a further derivative of this view and a nice way to avoid the numerous risks in the mining space.
Global X Copper Miners ETF earns an allocation given there is no means to get exposure to some of my prefered themes via ETFs, i.e. coal and tankers. Copper does well, given the demand from electrifying everything and a big supply deficit looming.
Now I'll switch to the ETFs I won't yet own but find intriguing. The Cannabis ETF fits this bill as talk about a bombed-out sector, yet it doesn't seem to have based/found a bottom. I'm also hesitant to dive into a sector where the thesis heavily relies on legislation. However, I suspect I'll have some exposure to this sector one day when I can identify the catalyst which will turn things around.
Invesco DB Agriculture Fund is next up, and while I love the long agri trade, I'm not a huge fan of these future-based ETFs. Give me a basket of companies any day. That said, a small allocation to this or CORN or WEAT make sense with the backwardation currently across these markets
The Betashares Global Royalties ETF is a new ETF I hadn't come across before; it is a more niche version of the Inflation beneficiaries ETF with a broad range of royalty streams such as pharma and movies. The ETF only launched in September this year, so is a relatively new offering.
I've heard Rick Rule and other pundits run through the long water thesis as freshwater sources are becoming increasingly valuable. The issue is similar to SMRs in that the companies in the water ETFs have tiny exposure to the water trend itself. So when you buy one of these water ETFs, you make a lot of bets that have nothing to do with water. Looking at the top ten holdings of a few of these water ETFs the companies are definitely on the expensive side, so even though I like the water thesis, I'll pass on these ETFs as a way to play it.
Lastly, we have the VanEck Africa Index ETF. While I'm bullish on African equities, I think this ETF is a poor way to play the theme. ETFs like these only care about liquidity, and illiquidity is an edge in tiny exotic markets like this. One only has to watch my interview with Tim Staemose, who runs the African Lions fund, to realise there is a heap of African companies which are high growth yet trade at coal company valuations. With an ETF, they care about liquidity, so the allocations are the inverse of where the performance will be. Take the ETF's 33% allocation in South Africa vs 3% in Tanzania. If you are going to take the risk in African equities, find a fund with an on the ground manager or steer clear, in my view.
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