ETF Wrap: U.S. Oil Fund outperforms while ETFs remain ensnared in Russia-Ukraine war fallout

Two ETFs at Cathie Wood’s ARK Investment Management, an asset manager known for investing in companies with disruptive technologies, also ranked among the top 5 performers, though they remain  deeply in the red this year.

Elsewhere on the tech ETF front, we spoke with Scott Helfstein, executive director of thematic investing at ProShares, about the firm’s new Metaverse ETF. And we caught up with Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors, on what he’s seeing in ETF fund flows in the U.S.

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Russia’s attack on Ukraine continues to reverberate through the exchange-traded fund industry, with U.S. Oil Fund LP
USO,
-2.62%
standing out as the top performer over the past week amid a rise in crude prices. But Russia-focused ETFs remained entangled in the ramifications of the war as the Russian stock market partially reopened Thursday after closing at the end of February.

Related to the iShares MSCI Russia ETF, “it’s unclear whether – and when – Russia will be allowing foreign investors to sell Russia securities,” a BlackRock spokesperson said Thursday in an email to MarketWatch. NYSE halted trading of the ETF and “the suspension is still in place,” the spokesperson said.

Trading of the iShares MSCI Russia ETF, VanEck Russia ETF, VanEck Russia Small-Cap ETF and Franklin FTSE Russia ETF was halted March 4 due to regulatory concerns, according to NYSE’s website. VanEck’s Russia ETFs are listed on the Cboe BZX exchange, while the iShares MSCI Russia ETF and Franklin FTSE Russia ETF trade on the NYSE Arca, the website shows.

A NYSE spokesperson declined to comment. A Cboe spokesperson declined to comment on the trading halt of VanEck’s Russia-focused ETFs, while VanEck declined to comment through a spokesperson.

Read: ‘This is not a real market.’ How Russian stocks surged in first trading after crippling economic sanctions

Meanwhile, the U.S. Oil Fund, which holds predominantly short-term NYMEX futures contracts on WTI crude oil, was the top performer over the past week, according to FactSet data. West Texas Intermediate crude for May delivery settled 5.2% higher on Wednesday at $114.93 a barrel.

The good

The bad

U.S. Oil Fund’s gains so far in 2022 are massive, with shares of the exchange-traded product surging nearly 51% this year through Wednesday, FactSet data show.

While the U.S. stock market has been choppy and broadly remains mired in a slump so far in 2022, the energy sector has soared, with higher oil prices stemming from the Russia-Ukraine war helping to fuel its rise. Shares of the SPDR S&P Oil & Gas Exploration & Production ETF
XOP,
+1.25%
have gained more than 36% this year through Wednesday, according to FactSet data. 

Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors, said by phone that he’s seen inflows into U.S. sustainable environment ETFs rise so far this month to around $741 million, which is “slightly above” the average $640 million in monthly inflows seen over the past year. 

He said the war in Ukraine and concerns surrounding Russian oil and gas may have helped drive some portion of asset flows into the sustainable ETFS. Also, the U.S. Securities and Exchange Commission on Monday gave a nod to preliminary approval of long-anticipated regulation on climate-change disclosures for publicly-traded companies, which Bartolini said may have influenced the sentiment of some investors, as well. 

See: SEC’s landmark climate-change ruling could demand companies account for pollution they don’t directly create

Meanwhile, investors this month have shown a preference for equities over bonds, with U.S. stocks capturing the “the lion’s share” of equity flows in the U.S.-listed ETF market, according to Bartolini. “It’s been very U.S. equity-focused” amid concerns the Russia-Ukraine war will deliver a bigger hit to growth in Europe, he said. Investors are favoring stocks over fixed income as the Federal Reserve has begun raising interest rates, he said, with investors worried that rate hikes will hurt the value of their bond holdings.

As for sector exposure, technology and healthcare, two areas that tend to have a “quality bias,” have stood out in attracting inflows this week, according to Bartolini.

In disruptive tech, the ARK Next Generation Internet ETF
ARKW,
+1.30%
and the ARK Fintech Innovation ETF
ARKF,
+1.25%
have been among the top performers over the past week, but remain beaten down so far in 2022, according to FactSet. Based on Thursday afternoon trading, shares of the ARK Next Generation Internet ETF are down around 26% this year, while the ARK Fintech Innovation ETF has dropped around 27%, FactSet data show, at last check.

ProShares Metaverse ETF

As for recent ETF launches, MarketWatch spoke with Scott Helfstein, executive director of thematic investing at ProShares, about the firm’s new Metaverse ETF
VERS,
+1.64%,
which began trading late last week.

“We think about the metaverse as an interaction between the physical and digital worlds,” Helfstein said in a phone interview. “The technology for it is just being built,” he said. “It really has the potential to change not just how we entertain ourselves, but really how we work and how we live.”

Media and entertainment represent the fund’s largest sector weighting at almost 31%, followed by semiconductors at about 25% as of March 10, according to ProShares’s website. Semiconductors are an important piece of the data processing that is “absolutely critical” to creating a more nuanced and “compelling” experience in the virtual world, said Helfstein.

Semiconductor companies NVIDIA Corp.
NVDA,
+9.82%
and Himax Technologies Inc.
HIMX,
+0.84%
were among the Metaverse ETF’s top 10 holdings on March 23, according to ProShares’s website. 

People tend to associate the metaverse with Facebook parent Meta Platforms Inc.
FB,
+2.86%
or Google parent Alphabet Inc. and Google’s wearable computer Glass, but so many other technologies come together in the ecosystem, said Helfstein. For example, on March 21 China’s WiMi Hologram Cloud Inc.
WIMI,
+0.72%
announced its inclusion in the ProShares Metaverse ETF.

Helfstein said WiMi is working on bringing 3D interactions to “the physical space.” While many people think of the metaverse as a “fully immersive virtual-reality experience,” Helfstein said it also involves digital interaction in the “physical world” for an “augmented reality.” 

Vuzix Corp.
VUZI,
-0.15%,
which produces smart glasses that assist surgeons in operating rooms as well as augmented-reality technologies, is also among the Metaverse ETF’s top 10 holdings as of March 23. So are well-known Big Tech companies including Apple Inc.
AAPL,
+2.27%,
Alphabet
GOOGL,
+2.38%,
Meta, Microsoft Corp. and Amazon.com Inc., according to ProShare’s website.

The ETF tracks an index consisting of companies that derive revenue from “areas we think are critical to metaverse development,” said Helfstein.

Fairlead

Another new ETF, Fairlead Tactical Sector ETF
TACK,
+0.84%,
began trading this week.

Fairlead Strategies says on the fund’s website that the ETF “seeks capital appreciation with limited drawdowns” by using top-down technical analysis. Fairlead is an independent research firm and investment advisor led by founder and managing partner Katie Stockton.

Fairlead’s new fund holds a mix of SPDR ETFs, according to the website. 

ETF reads:

MemeMarkets: Meet the Metaverse ETF that is shorting Meta (MarketWatch)

Battered Bond Bulls Send Record Cash to Giant Treasury ETF (Bloomberg)

A Key ETF Metric on Wall Street Suggests Fresh Bond-Market Pain (Bloomberg)

SEC Puts 2 More Bitcoin ETFs on Hold (Barron’s)

Active funds take more of the fixed income ETF pie (Financial Times)

Uranium ETFs Quietly Surge (ETF.com)