There are about 118 percentage points between the best and worst performing European exchange-traded products (ETPs) in May, with returns for the month ranging from 18.5% to -100%.
We have looked at the key trends in the fifth month of the year, excluding inverse and leveraged funds. These instruments, being purely passive products, reflect the evolution of the markets without the bias (good or bad) of an active manager.
The Leaders
According to Morningstar Direct, the top 15 of ETPs is led in May by the VanEck TRON ETN (VTRX). Launched in September 2021, this exchange-traded note tracks the MVIS CryptoCompare TRON VWAP Close index, which is exposed to the Tron protocol, one of the largest blockchain operating systems in the world and currently DeFi (decentralised finance)’s third-largest blockchain in terms of total value locked (around $6 billion).
Tron is the only blockchain to have enjoyed continued growth across all major networks, while almost all the others have shed double-digits over the past month. This is due to the fact that Tron’s DeFi ecosystem is benefiting from its new high-yield stablecoin, USDD.
Justin Sun (TRON founder) promised in April that USDD holders would be able to capture a “risk-free” 30% interest rate across several Tron-based projects. Given the high rates, many of these platforms have enjoyed a hefty uptick in activity. There is a small detail, though: the new dollar-pegged asset uses a scheme not dissimilar to the recently-imploded Terra stablecoin, LUNA.
To address growing concerns, Sun told Bloomberg last week that USDD will be modified in order to avoid a Terra-like collapse. He said that overcollateralising the algorithmic stablecoin would boost investor confidence.
Beyond that, oil and diesel prices have soared again, as supply concerns continue to be the main focus. The European Union leaders agreed to cut Russian crude oil imports by as much as 90% by the end of the year. The agreement is in principle, and details would still need to be clarified.
As a consequence, the energy sector is once again the center of attention in the ranking for the month's best-performing ETPs, in which there is also room for a fund exposed to the photovoltaic industry, the Global X Solar UCITS ETF. The fund tracks the Solactive Solar v2 Index, which has 50 components and is designed to give exposure to major companies active in solar energy. Last May 18, the European Commission unveiled the REPowerEU package on energy saving and diversification in supply, as well as accelerating the green transition. Among the various proposals is to make solar panels mandatory for all public and commercial buildings from 2026 and for all residential buildings starting from 2030.
The Laggards
ETFs exposed to digital assets, as blockchain or cryptocurrencies suffered heavily in May. The past month will be remembered for the vertical collapse of the Terra-Luna project and the connected stablecoin (UST), which then dragged the entire crypto ecosystem downward.
UST was designed to maintain its dollar peg through algorithms and trading incentives that also involved a sister token, Luna. It became hugely popular over the past year, until it stopped working as intended (a value of $1 at all times) on May 7, when a sell-off triggered a “death spiral” that sent UST and Luna collapsing and burning more than $40 billion in combined market value (which basically means 100%). LUNA’s price fell from $116 in April to a fraction of a penny on May 9.
This kind of events have bigger implications than the lost billions. It is also such episodes that prompted European Central Bank president Christine Lagarde to state in a recent interview that crypto assets “it is based on nothing, there is no underlying asset to act as an anchor of safety.” A digital euro would be “vastly different” from private cryptocurrencies, she added.
Lagarde also called on global policymakers to put rules in place to protect inexperienced investors making big bets on digital assets. “I’m concerned about those people who think it’s going to be a reward, who have no understanding of the risks, who will lose it all, and who will be terribly disappointed, which is why I believe that should be regulated.”
The Biggest
Monthly top and flop performers often coincide with very volatile and therefore risky products, which should play a satellite role in your portfolio. Below you have an overview of the biggest European-domiciled ETPs in terms of assets, which could be more appropriate to consider among core holdings. Performances in May 2022 go from -0.05% of the iShares Core FTSE 100 UCITS ETF (ISF) down to the ZKB Gold ETF AA CHF (ZGLD), which lost 5.3% last month.
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