With the S&P 500 coming off its seventh-worst annual performance since the 1920s in 2022, it’s accurate to say there are plenty of candidates for rebounds this year and that’s true of both individual stocks and exchange traded funds.
In the search for “redemption story” ETFs, investors should note that simply because last year was glum for stocks (and bonds for that matter), that doesn’t guarantee things will be better in 2023. However, market history, which doesn’t always repeat but often rhymes, is littered with examples of one rough year giving way to a positive one.
There’s some other potentially interesting, if not downright good news for investors. Many of the ETFs that credibly fit the bill as 2023 redemption tales are fan favorites and/or chock full of beleaguered growth stocks from the communication services, consumer discretionary and technology sectors – three of 2022’s worst-performing groups.
With those factors in mind, here some ETFs that could be tantalizing redemption stories in the new year.
VanEck Digital Transformation ETF (DAPP)
As its name implies, the VanEck Digital Transformation ETF (DAPP) is a crypto-correlated ETF and while it doesn’t directly own bitcoin, it tracked the largest digital currency lower in a big way last year. Add to that, DAPP is littered with growth stocks, which further compounded the fund’s 2022 woes.
Fortunately, there’s budding optimism that 2023 will be kinder to bitcoin and crypto-correlated stocks, such as Block (SQ) and Coinbase (COIN), which combine for 17% of the DAPP roster.
“We believe crypto is probably amongst the few industries that can clock frontier-tech-like growth, in a broadly maturing tech landscape,” wrote Bernstein analyst Gautam Chhugani in a recent report. “Today, crypto touches less than 5% of total internet users with significant headroom for application led adoption.”
He added that crypto currently reaches a mere 5% of internet users, indicating there’s an attractive runway for growth for some DAPP components.
Invesco NASDAQ 100 ETF (QQQM)
The low-cost cousin of the vaunted Invesco QQQ (QQQ), the Invesco NASDAQ 100 ETF (QQQM) has 2023 ETF redemption story written all over it and it’s easy to understand why. QQQM is a growth-heavy fund, meaning it succumbed to rising interest rates in 2022.
Fortunately for investors there’s a silver lining as it pertains to QQQM’s 2023 outlook. That being the point that many high-quality mega-cap stocks residing in the Invesco ETF are trading at unusually attractive valuations.
“Among the most undervalued industries now is internet content and information, which includes stocks such as Alphabet (GOOG), the parent company of Google, and Meta Platforms (META), the parent company of Facebook," wrote Morningstar analyst Jakir Hossain. "It is now the most undervalued industry, at an average discount of 52%. A year ago, this industry ranked as the fourth-most undervalued, with the group viewed as 21% undervalued on average at the time."
VanEck Gaming ETF (BJK)
As noted above, consumer discretionary was one of the worst-performing sectors in 2023, meaning pain was acute for many casino-gaming stocks. Translation: The VanEck Gaming ETF (BJK) has the makings of a 2023 ETF redemption story.
Last year, BJK, which follows the MVIS Global Gaming Index, was hit on multiple fronts. Those include shares of US-based casino operators flailing amid soaring inflation and increasing recession expectations. Additionally, sports wagering stocks tumbled as investors fretted about marketing costs and timelines to profitability.
However, Macau concessionaires, which represent a fair percentage of the BJK portfolio, were less bad in 2022 and have tailwinds this year as China relaxes its coronavirus travel restrictions. Take the case of Wynn Resorts (WYNN), which surged in the first trading day of 2023 on the back of a Wells Fargo upgrade.
“WYNN is highly levered to Macau’s GGR recovery, now more palpable post China’s policy pivot, and representing the best growth opportunity in Gaming,” analyst Daniel Politzer wrote. “Additionally, US fundamentals are solid; Las Vegas has marquee citywide events three of the next five quarters, and Boston should see a visitation/database/GGR bump once Massachusetts sports betting launches.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
Read Todd's Bio