Scott Helfstein

Australian investors could benefit from opportunities in the US as its economy, markets, and quality companies are far more robust than many are giving them credit for.

Global X ETFs Head of Investment Strategy, Scott Helfstein says despite warnings of economic slowdown and stubborn inflation, innovative companies are continuing to outperform.

“What really matters are the three ‘Ls’ – labour, leverage, and liquidity – all of which are painting a positive picture. Consequently, the Fed is sitting back in comparison to the previous three interest rate cutting cycles where it seemed they couldn’t cut fast enough,” Helfstein said.

“The Fed’s 2% inflation target is becoming less credible the longer they maintain their stance, add in encouraging economic data points, stock market strength, and the US election in November, I do not expect a US rate cute until at least December 2024.”

Economic stability is translating to corporate success, with S&P 500 companies delivering profit margins above 12% for 11 quarters straight. In fact, in the last three to five years there has been the same level of margin expansion seen over the last 75 years.

Helfstein says these impressive margins were achieved thanks to company spending and reinvestment, largely in automation and digitalisation – structural megatrends which are epitomised by artificial intelligence (AI).

“With the awakening of AI, we are living through the fourth great innovation boom, and it’s being driven by corporate America. Although it may be tempting to compare this market to that of the dotcom era, I’d highlight that the dotcom bubble was exorbitant while the AI rally has been largely rational with lower price-to-forward multiples and performance metrics aligned with quality investing,” Helfstein said.

“The real place we should be drawing a parallel between the dotcom and AI phenomena is that both technologies have and will fundamentally change the world as we know it. So, when people ask me whether they have missed the AI opportunity, I say, ‘sure you may have missed Nvidia, but the ship has far from sailed’.”

“The internet absolutely revolutionised every facet of life, it just took an additional 15 years than when the dotcom bubble burst because there was more groundwork to be done before it was viable, and I expect the same to be true of AI.”

AI is driving capital expenditure and subsequently capital growth in companies involved directly in the development and adoption of the technology, hence the AI thematic will continue to perform, as will the likes of semiconductors and cloud computing.

Helfstein is also looking laterally at adjacent industries which are positioned to benefit from AI expansion such as nuclear energy. He says Amazon’s purchase of a datacentre right next to a small modular reactor (SMR) was a lightbulb moment.

“More AI, equals more computing power, equals more energy – it’s a simple equation really. Nuclear energy is coming online in the US while Japan is turning their reactors back on and major European economies are back under pressure to use nuclear as sanctions on Russian commodities squeeze supply. All things indeed being equal, demand for uranium and nuclear energy will rise alongside AI.

“Ultimately, these thematics can be difficult to access for Australian investors because they are US-centric. Thematic ETFs provide local investors an accessible route to a wide world of opportunities.”

Global X has a lineup of 38 ETFs in Australia, with 11 under the thematic umbrella including the newly launched Global X Artificial Intelligence ETF (ASX: GXAI) and Global X US Infrastructure Development ETF (ASX: PAVE).

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Evan Metcalf

Global X ETFs (Global X) has launched the Global X US Infrastructure Development ETF (ASX: PAVE) on the ASX, allowing Australians exclusive access to the strategy followed by the world’s largest US infrastructure development fund.^[1]

PAVE, which tracks the Indxx US Infrastructure Development Index, is designed to invest in companies that are expected to benefit from increased infrastructure investment in the US. This includes companies involved in the production of raw materials, heavy equipment, engineering, and construction.

Chief Executive, Evan Metcalf, emphasised the strategic importance of exposure to infrastructure development in alignment to Global X’s investment approach.

“Infrastructure development, which is distinct from investing in infrastructure assets themselves, is critical for the growth and modernisation of any economy. Within the US, recent legislative acts are directing substantial funding towards infrastructure initiatives, signalling enormous growth potential for companies in this sector.

“This investment opportunity aligns strongly with our core investment thesis of research and innovation. Building on our successful track record of pioneering thematic products in Australia – including recent launches across crypto, technology, and AI – we are excited to introduce this unique infrastructure development ETF to Australian investors,” said Metcalf.

Scott Helfstein, Head of Investment Strategy at Global X added context around the long-term growth potential of infrastructure services in today’s market.

“The US infrastructure sector is facing an urgent need for development. As recent as 2021, the American Society of Civil Engineers assigned US infrastructure a ‘poor grade’, highlighting significant deficiencies which must be addressed. This has spurred several long-term legislative catalysts including the IIJA and CHIPS Act, amounting to nearly US$2 trillion in federal investment.^[2]

“PAVE stands uniquely positioned to capitalise on this momentum, offering a balanced portfolio that strategically leverages these long-term trends. This provides investors with opportunities for both stability and growth, enabling them an opportunity to participate in this transformative period.”

PAVE is the 38th product to join the company’s strong product lineup in Australia. It follows the recent launches of several innovative thematic ETFs, including the Global X Cybersecurity ETF (ASX: BUGG) and Global X Artificial Intelligence ETF (ASX: GXAI).

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Notes:
[1] https://etfdb.com/etfs/industry/infrastructure/
[2] https://www.asce.org/publications-and-news/civil-engineering-source/article/2021/03/03/2021-report-card-for-americas-infrastructure-grades-reveal-widening-investment-gap

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Scott Helfstein

Global X ETFs (Global X) is launching the Global X Artificial Intelligence ETF (ASX: GXAI) on the ASX, offering Australians targeted exposure to innovation and growth in artificial intelligence (AI) related companies.

GXAI, which tracks the Indxx Artificial Intelligence & Big Data Index, focuses specifically on investing in companies along the AI value chain, including those involved in generative AI technology providing automation of systems and AI-as-a-Service solutions. GXAI will be the first dedicated Artificial Intelligence ETF launched in Australia.

Chief Executive, Evan Metcalf said there is almost limitless potential with the AI thematic and forecasts suggest the global AI market could increase to US$300bn by 2026.[1]

“Artificial intelligence is still maturing, and with this natural evolution comes the potential opportunities for new applications. GXAI offers investors a way to target the rapid advancements and capabilities of AI technologies across a range of industries and a diversified selection of companies. We believe there is a big appetite for AI-related ETFs in the local market, as Global X has already seen a combined $125 million in flows this year to date across the Global X FANG+ ETF (ASX: FANG) and the Global X Semiconductor ETF (ASX: SEMI) which offer exposure to subsets of the AI theme,[2]” Metcalf said.

“AI is not a flash in the pan, it’s a structural shift which will change industries and life as we know it. Australian investors can use GXAI to invest in leading companies across the value chain of this megatrend which are positioned to benefit from AI adoption and innovation. Hence, GXAI is a fitting addition to our product lineup as our thematic investing ethos is centred on longer-term opportunities,” Metcalf said.

Speaking to the strategic targeted benefits of GXAI, Scott Helfstein, Head of Thematic Solutions at Global X, said: “While GXAI captures some of the most prominent names in the AI sector, such as Netflix, Adobe and Nvidia, it applies moderation through a single-stock cap exposure of 3%. This acts as a natural portfolio diversifier and presents a more balanced portfolio which thoughtfully targets the AI theme.”

“In the past 12 months, we’ve seen an increased global appetite to capitalise on the growth potential of AI technologies, and we expect this momentum to continue. It is important for investors to have strong, well tested investment vehicles at their disposal to capitalise on this important thematic.”

GXAI is the latest addition to Global X’s 36-strong product lineup in Australia. It expands Global X’s robust suite of technology-themed ETFs including BUGG, FANG, N100, ROBO, SEMI, and TECH.[3]

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Notes:
[1] AIQ (globalxetfs.co.jp)
[2] Bloomberg as at 28 March 2024.
[3] Assets under management as at August 2022, Global X
[4] Ibid.
[5] Assets under management as at June 2022, Mirae Asset Global Investments

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