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Think twice before buying the top 10 ETFs of 2022

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Last year was a brutal one for investors. The S&P 500 gave up more than 18% in 2022, and the broad bond market surrendered 13%.

But over short periods, there’s a good chance at least one exchange-traded fund is still performing well. ETFs are baskets of stocks that track the performance of a market index but trade inexpensively on an exchange like a stock, making them popular choice among retail investors.

While many ETFs are designed to track broad market indexes, more niche funds offer investors exposure to virtually any slice of the market, and one is bound to be working. But what works in one year may not work in the next, or over the long term.

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“If we look at the top of the NFL standings, we can have a pretty good idea that those are the best teams,” says Russ Kinnel, director of manager research at Morningstar. “It doesn’t work that way in investing. There’s much more luck and randomness involved.”

You don’t have to look very hard at the list of the top-performing ETFs to get a sense of what worked in an otherwise bleak 2022.

The top performing ETFs in 2022: a fund tracking stocks in Turkey, one designed to hedge against hikes to interest rates and a selection of ETFs that invest in the energy sector. (Notably, this list excludes leveraged and inverse ETFs, which are generally considered tools of options traders unsuitable for long-term investors.)

While this list is helpful to understand what went on in 2022, it isn’t necessarily an indication of how any of these funds will perform in the future.

Why these ETFs stood out in 2022

It doesn’t get much more random than investing in an index of Turkish stocks — for the average U.S.-based investor, at least. But in a year when stocks sank the world over, that index returned 106%.

After a grisly 2021, Turkish shares turned things around in 2022, thanks largely to the country’s central bank slashing interest rates during a period when everyone else was raising them. With inflation through the roof (it hit 85.5% in Turkey at one point this year) and the value of the lira eroding, Turks turned to the stock market in the hopes of protecting their cash from rising prices.

The majority of the rest of the list reflects a gangbusters year for the energy sector. The Russian invasion of Ukraine contributed to a spike in oil and natural gas prices as the U.S. and European Union sought to crimp Russian energy exports.

As a result, oil and natural gas firms in the S&P 500 delivered an average return of more than 59% in 2022. None of the other 10 sectors managed a positive return.

How to invest in ETFs in 2023

It can be tempting to buy last year’s winners in the hopes that they can continue an upward run. But be careful, investing experts say. The trends that drive stock prices one way or another can change quickly.

In hindsight, some of the drivers behind these ETFs’ success may seem obvious. “Predicting sector performance can look deceptively easy,” says Kinnel. “You can say it was obvious that energy would be good. But look at performance in individual years, and you’ll see it’s actually really hard.”

It’s difficult to predict how any investment or group of investments will behave in the near term. While knowing how an investment has performed recently can be a data point in your larger analysis, it should never be the sole reason you buy, says Todd Rosenbluth, head of research at ETF research firm VettaFi.

“The adage that past performance isn’t a predictor of future results is likely going to be just as relevant in 2023 as it was throughout the history of investing,” he says. “The market environment this year is going to be different.”

Rather than asking, “What have you done for me lately?” step back and look at any prospective fund’s long-term performance. By looking at a fund’s last several calendar years, you can get a sense of how it performs year in and year out in different types of markets, both in absolute terms and relative to peer funds.

“A single-year performance is information, not a verdict,” says Kinnel.

More important, consider the specific role any fund might play in your long-term investing plans. While it may seem attractive to bet on the next slice of the market to take off, you’d be wise to avoid devoting major space in your portfolio niche funds, which can be volatile and unpredictable, experts say.

Funds that track stock market sectors may seem like an intuitive way to invest in the market, but don’t invest unless you already have a broad-based core portfolio, says Rosenbluth.

“These should be complementing your strategy rather than being your broader strategy,” he says.

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Lithium Americas stock rises on GM’s $650 million equity investment – MarketWatch

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Lithium Americas Corp.
LAC,
+13.19%

stock was up 9.2% in premarket trading Tuesday after it said General Motors Co.
GM,
+8.14%

agreed to invest $650 million in the company to help develop Nevada’s Thacker Pass mine, the largest known lithium source in the U.S. Lithium Americas said the project would create 1,000 jobs in construction and 500 in operations. It would produce lithium for up to 1 million electric vehicles (EVs) a year. Lithium from Thacker Pass will be used in GM’s proprietary batteries for its EVs. “Direct sourcing critical EV raw materials and components from suppliers in North America and free-trade-agreement countries helps make our supply chain more secure, helps us manage cell costs, and creates jobs,” GM CEO Mary Barra said. Thacker Pass is scheduled to go into operation in the second half of 2026, the companies said.

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Investment funds that are moving to defensive positions, and some that are not – The Globe and Mail

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What are we looking for?

ETFs and DIY mutual funds that made notable changes to their defensive-sector exposure over 2022.

The screen

The year is off to a great start for equity investors, with most equity indexes posting single-digit gains on a year-to-date basis, perhaps fuelled by investors’ reinvigorated confidence that the world’s central banks have inflation under control. That said, a new economic environment of higher interest rates might prompt some investors to have a look at their sector exposures, perhaps allocating more to defensive sectors for risk-reduction purposes, or to more cyclical sectors if they’re bullish on market prospects. To help identify potential candidates, I thought to analyze funds that have made noticeable moves over the course of last year. To start with, I screened the Morningstar Direct database for Canadian-domiciled equity ETFs and DIY mutual funds for those that have a reasonable track record, denoted by their Morningstar Rating for Funds or “star” rating of three stars or better, implying that the initial universe performed at least as well as category peers.

I then looked at the sector allocations of each fund as they appeared at the end of 2022 and 2021. Specifically, I used Morningstar’s “super-sector” definitions to determine which funds have the largest changes in exposure to defensive sectors. Recall that Morningstar’s classification structure for stocks divides global companies into three “super sectors”: (1) cyclicals, which include basic materials, consumer cyclical, financial services and real estate stocks; (2) defensive, which includes consumer defensive, health care and utilities stocks; and finally (3) sensitive, which includes communications services, energy, industrials and technology companies. I used the change in exposure to the defensive sector over the 2022 calendar year as the sole metric to rank the list of three-star-or-better funds.

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What we found

20 funds moving into, and away from defensive sectors

Name Ticker Morningstar Category Annual Report Management Expense Ratio (MER) Morningstar Rating for Funds Total Ret YTD (%) Total Ret 1 Yr (%) Total Ret Annlzd 3 Yr (%) Total Ret Annlzd 5 Yr (%) Defensive Supersector (12M % Change) Equity Econ Super Sector Defensive % (Net) 2022-12 Equity Econ Super Sector Defensive % (Net) 2021-12 Sensitive Supersector (12M % Change) Equity Econ Super Sector Sensitive % (Net) 2022-12 Equity Econ Super Sector Sensitive % (Net) 2021-12 Cyclical Supersector (12M % Change) Equity Econ Super Sector Cyclical % (Net) 2022-12 Equity Econ Super Sector Cyclical % (Net) 2021-12
Funds Moving to Defensive Sectors:
Fidelity US Momentum ETF FCMO-T US Equity 0.32 0.3 -1.7 41.7 48.4 6.7 -30.1 31.7 61.8 -11.8 19.6 31.4
Invesco S&P 500 Momentum ETF CAD MOM-NE US Equity 0.53 2 -1.0 4.0 1.6 3.5 38.3 49.3 10.9 -11.1 36.9 48.0 -27.8 12.9 40.7
iShares MSCI USA Momentum Ftr ETF XMTM-T US Equity 0.32 3 -1.1 -0.9 4.9 29.9 46.2 16.3 -13.2 36.8 50.0 -16.5 16.8 33.3
Purpose Global Innovators ETF PINV-T North American Equity 1.23 1 4.0 -24.7 -3.8 28.8 43.3 14.5 -28.4 37.1 65.5 -5.5 4.6 10.1
CI Munro Global Growth Equity ETF CMGG-T Global Equity 1.06 3.5 -4.7 22.6 38.4 15.8 -18.4 34.7 53.1 -6.7 21.8 28.5
CI Global Climate Leaders ETF C$ CLML-T Global Equity 0.93 1.4 -3.6 21.5 39.6 18.0 -8.3 43.8 52.1 -16.4 9.5 25.9
SmartBe U.S. Quantitative Momentum ETF SBQM-NE US Equity 0.99 1.3 12.2 18.6 30.1 11.6 18.5 58.3 39.8 -36.7 11.3 48.0
Fidelity International Low Vol ETF FCIL-T International Equity 0.48 3 2.4 -1.3 -0.7 16.7 50.4 33.7 -0.4 23.8 24.2 -16.7 24.8 41.4
CI WisdomTree Intl Qual DivGrETF IQD-T International Equity 0.58 5 6.6 0.7 5.6 6.2 16.6 42.1 25.5 -4.2 30.7 34.9 -11.9 27.0 39.0
SmartBe Canadian Quantitative Mmntm ETF SBCM-NE Canadian Equity 0.08 2.4 1.7 15.1 20.3 5.2 9.4 48.4 39.0 -24.4 30.9 55.2
Funds Moving away from Defensive Sectors:
Leith Wheeler Intl Equity Plus Series B International Equity 1.59 2 6.3 -1.9 1.0 -0.8 -12.0 15.1 27.1 5.2 25.9 20.8 12.7 30.1 17.4
Invesco S&P 500 Hi Div Low Vol ETF CAD UHD-NE US Equity 0.39 2 1.6 10.2 5.4 6.1 -12.1 40.3 52.4 -3.6 22.3 25.8 16.3 36.9 20.6
Beutel Goodman North American Focus Eq D Canadian Focused Equity 1.49 4 4.4 4.8 8.7 7.2 -12.3 18.4 30.7 11.5 34.9 23.4 0.1 44.2 44.1
Fidelity US Value ETF FCUV-T US Equity 0.36 6.0 12.2 -12.9 18.3 31.3 7.4 46.4 39.0 4.6 34.2 29.6
Fidelity US Value Currency Neutral ETF FCVH-T US Equity 0.39 7.5 5.1 -13.0 18.3 31.3 7.3 46.2 39.0 5.2 34.8 29.6
Horizons NASDAQ-100 Cov Cll ETF QQCC-T International Equity 0.85 1 6.7 -4.1 0.6 -1.1 -16.2 15.6 31.8 36.8 68.7 32.0 -19.2 15.2 34.5
TD Q Canadian Dividend ETF TQCD-T Canadian Dividend & Income Equity 0.39 1 7.4 9.3 5.5 -16.7 11.5 28.2 6.6 40.9 34.4 10.3 47.1 36.8
Invesco S&P GlbexCndHiDivLowVol ETF CAD GHD-NE Global Equity 0.67 2 4.3 6.3 1.5 3.2 -18.8 33.3 52.1 5.8 22.1 16.3 11.5 39.0 27.5
First Trust Morningstar Div Lrs ETF CADH FDL-T US Equity 0.66 3.2 8.3 11.3 7.8 -19.4 31.1 50.5 9.4 45.0 35.7 10.7 22.1 11.4
Guardian Fundamental All Country Eq ETF GGAC-T Global Equity 1.05 7.7 2.4 -25.2 2.1 27.4 -20.6 12.0 32.6 -23.2 13.9 37.1

Source: Morningstar Direct | Data as of January 27, 2023

The accompanying table includes 10 funds that have shifted their exposure toward defensive sectors the most, and the 10 funds that have shifted the furthest away from defensive sectors. The table also displays fees, trailing performance, ratings and inception dates. It is worthwhile noting that the three funds that have moved most into defensive sectors (XMTM-T, FCIL-T and IQD-T) are “smart beta” products, which are rules-based in nature and do not follow the discretion of a portfolio manager. Interestingly, the three funds are exposed to quite different factors. Also noted is the fact that several smart beta products that look for exposure to dividends (such as FCUD-T, XHU-T and VIDY-T), have shifted away from defensive sectors, while RBC’s actively managed mutual funds have increased their exposure to defensive sectors.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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CPP Investments Anchors New IndoSpace Fund with US$205 Million Investment – Yahoo Canada Finance

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MUMBAI, India, Jan. 30, 2023 /CNW/ – Canada Pension Plan Investment Board (CPP Investments) today announced an investment of US$205 million as an anchor investor in IndoSpace‘s new real estate fund. IndoSpace is a leading real estate company in India. The investment marks the first close for IndoSpace Logistics Parks IV (ILP IV), the company’s fourth development vehicle, targeting US$600 million of total equity commitments.

Image of sites (CNW Group/Canada Pension Plan Investment Board)

Image of sites (CNW Group/Canada Pension Plan Investment Board)

This is the latest venture between CPP Investments and IndoSpace. The first joint venture, IndoSpace Core, was established in 2017 and now owns the largest portfolio of stabilized modern logistics assets in India. CPP Investments has also invested in ILP III. Following the investment in ILP IV, the partnership will exceed US$1 billion in assets.

ILP IV will add an additional 25-30 million square feet to the IndoSpace portfolio, furthering IndoSpace’s leading position in the Indian market. ILP IV will focus on India’s largest logistics real estate markets: Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, and Pune. The establishment of ILP IV follows on from the first three development funds, which have a combined total of 56 million square feet of modern logistics real estate in India.

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Hari Krishna V, Managing Director, Head of Real Estate India, CPP Investments, said, “Over the past few years, we have made numerous investments in India’s industrial space, where we see strong demand as the manufacturing sector continues to grow and the e-commerce sector matures. We are pleased to be working with our longstanding partner IndoSpace to further capitalize on opportunities in this space and believe this investment will deliver strong risk adjusted returns for CPP contributors and beneficiaries.”

Brian Oravec, Managing Partner and CEO, IndoSpace Capital Asia, said, “We are excited to extend our successful partnership with CPP Investments. CPP Investments’ commitment to ILP IV is a testament to IndoSpace’s leadership in the industrial and logistics real estate space in India. ILP IV will allow us to continue to expand our unique national network to better serve our customers. Industrial and logistics infrastructure is a key enabler of economic growth. To meet India’s aim of becoming a US$5 trillion economy by 2025, IndoSpace is excited to continue to be one of India’s key infrastructure creators.”

About CPP Investments

Canada Pension Plan Investment Board (CPP InvestmentsTM) is a professional investment management organization that manages the Fund in the best interest of the 21 million contributors and beneficiaries of the Canada Pension Plan. To build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. As per September 30, 2022, the Fund totalled C$529 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedInFacebook or Twitter.

About IndoSpace

IndoSpace (www.indospace.in) is the largest investor, developer, and operator of grade A industrial and logistics real estate in India. IndoSpace has the largest national network of 50 logistics parks with 56 million square feet delivered/under development across 10 cities. With India’s largest and most experienced industrial real estate team, IndoSpace continues to lead the development of key logistics infrastructure for India’s economic growth. For more information, visit www.indospace.in and follow us on LinkedIn, Twitter, and Facebook.

CPP Investments logo (CNW Group/Canada Pension Plan Investment Board)CPP Investments logo (CNW Group/Canada Pension Plan Investment Board)

CPP Investments logo (CNW Group/Canada Pension Plan Investment Board)

IndoSpace logo (CNW Group/Canada Pension Plan Investment Board)IndoSpace logo (CNW Group/Canada Pension Plan Investment Board)

IndoSpace logo (CNW Group/Canada Pension Plan Investment Board)

SOURCE Canada Pension Plan Investment Board

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