Top Thematic ETFs Over the Last Month

While the market has had its ups and downs over the last month, some market sectors have cut through the noise. ETFs tracking specific themes have outperformed, as investors search for gains amid a stock market teetering on the edge of high valuations.

The Key Themes Driving ETFs

• While AI-backed tech stocks fluctuate, growing energy demand has continued to support battery manufacturers amid the energy transition.
• Chinese EV growth outpaces the rest of the world, with its largest producers supported by rising exports and strong domestic demand.
• Consolidation among large European banks has pushed up their share prices amid rumours of further M&A.

Top Flight Performers

Financial markets have swung quite heavily over the last couple of weeks. Leading up to the release of Nvidia's Q3 earnings, US equities were in retreat, with CNN's "Fear and Greed" index falling to "extreme fear". Another blow-out report from the AI King reassured markets that there was still upside to the AI-driven tech boom. However, the bout of euphoria did not last, as markets became increasingly uncertain about a Fed rate cut in December after unemployment fell and the October NFP was cancelled. Amid these ups and downs, some ETFs stood out and could offer an interesting alternative for investors looking to diversify their portfolios. 

Investors Keen on Energy Storage

One of the fastest-growing ETFs over the last 30 days has been Solactive's Battery Value-Chain Index, which is up 5.5%. However, that's just the latest move, as the fund is up over 57% since the start of the year. It intends to track providers of battery technology, including mining companies that produce the raw materials. The sector has been shaken a bit by the trade war between the US and China, when the latter imposed export restrictions on rare earths. Surging demand for energy in data centres has put stress on electrical grids amid the transition to less reliable alternative energy sources, which has increased demand for electrical storage. This, coupled with a surge in demand for EVs, has increased demand for compact and new battery technologies. A specific battery-related ETF which is more focused on companies in lithium exploration, mining and battery products is the Global X Funds Lithium & Battery (LIT). LIT is up 6.4% over the past 30 days and 47% year-to-date.

EVs Gain Investor Support

In a similar vein, another fund that has seen even stronger growth over the last month has been the Solactive China Electric Vehicle and Battery fund, which is up 8.3%. Global EV sales have been steadily increasing, with even Tesla reversing its negative start to the year. However, sales in China have stood out as the world's second-largest economy puts on a full-court press to electrify its automotive fleet. China's BYD competes with Tesla for the title of the world's top-selling brand, but its domestic sales are rising even faster. China's EV exports doubled over the past year amid intense pressure in Europe to decarbonise, allowing companies in this sector to outperform. Other EV-related funds include Global X Autonomous & Electric Vehicles (DRIV) and iShares Self-driving EV & Tech.

European Banks Surge Amid M&A Craze

Banks are not the usual go-to for growth stocks, but recent consolidation efforts in the European banking sector have supported the Euro STOXX Banks ETF's 6.3% gain over the last 30 days. The fund tracks the ten largest banks in Europe, including BBVA and UniCredit, which have been making moves to acquire rivals. BBVA made an unsuccessful bid for rival, smaller Spanish bank Sabadell. UniCredit has been trying to expand its ownership of German Commerzbank but is facing challenges, and there are rumours it could be interested in BPER. This points to major European banks being flush with cash after the ECB cut rates and having the potential for further gains as larger banks acquire smaller competitors. Other European banking ETFs include iShares STOXX Europe 600 Banks (EXV1) and SPDR MSCI Europe Financials Sector (ESIF).