There are a few ASX exchange-traded funds (ETFs) which hit 52-week lows on Friday.
Volatility has increased across the global share market.
There is an ongoing war between Russia and Ukraine.
Investors are also looking at what's happening with inflation and interest rates. Central banks think that it's very important that inflation doesn't get too far ahead. The Reserve Bank of Australia (RBA) has a target range for inflation of between 2% to 3%. The RBA targets this range because:
This is a rate of inflation sufficiently low that it does not materially distort economic decisions in the community. Seeking to achieve this rate, on average, provides discipline for monetary policy decision-making, and serves as an anchor for private-sector inflation expectations.
The US Federal Reserve has a similar sort of expectation that it will keep a lid on inflation.
However, in January the market learned that US inflation in December was 7% higher than a year earlier. That was the fastest pace since June 1982.
US Fed boss Jerome Powell says that the plan is to increase interest rates by 0.25% this month. There are expectations of quite a few more increases during this year.
Why do interest rates matter so much to ASX shares and ETFs?
At the 1994 Berkshire Hathaway annual general meeting, Warren Buffett said:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.
ETFs fall
It has been a negative 12 months for some of the following growth-orientated ETFs below:
Betashares Asia Technology Tigers ETF (ASX: ASIA)
Today, the ASIA ETF declined more than 4%. Over the last 12 months it has dropped by 36%.
An ETF's return is only a reflection of the underlying businesses.
The ASIA ETF owns many of Asia's biggest tech businesses outside of Japan like Samsung, Taiwan Semiconductor Manufacturing, Tencent, Alibaba, Infosys and KD.com.
ETFS Battery Tech & Lithium ETF (ASX: ACDC)
The ACDC ETF has also fallen by more than 4% today. The past year only shows a 5% decline. But from the middle of January 2022, it has dropped close to 20%.
This ETF, as the name suggests, this gives exposure to the energy storage and production megatrend, including companies involved in the supply chain and production for battery technology and lithium mining. In the portfolio are names like Pilbara Minerals Ltd (ASX: PLS), ABB, TDK, Sumitomo and Hyundai Electric.
VanEck Video Gaming and Esports ETF (ASX: ESPO)
The ESPO ETF dropped close to 5% today. From the middle of November 2021, the ESPO ETF has actually fallen by more than 20%.
This portfolio owns some of the world's biggest businesses related to the video gaming industry such as Advanced Micro Devices, Tencent, Activision Blizzard, Nintendo, Electronic Arts, Take-Two Interactive Software and Bandai Namco.
