VanEck has rebalanced its Australian Equal Weight ETF (MVW) following the sharp rise in bond yields, which has resulted in the fund selling out of “unprofitable” buy now, pay later (BNPL) company Zip.
The yield on the 10-year Australian government bond hit 2.77 per cent on Wednesday, the highest level since October 2018, and up 20 basis points in just one day. Given currently strong momentum, VanEck anticipates the 10-year bond yield will climb over 3 per cent in the short term.
Also featured among the dumped companies are Magellan Financial, Eagers Automotive, Reliance Worldwide and Downer EDI.
Commenting on the fund’s decision to restructure its equal weight ETF, Russel Chesler, head of investments and capital markets, said five companies in total were deleted on 18 March, reducing the total number of constituents to 89 from 94.
“A notable deletion was Zip, whose share price has plummeted this year, belonging as it does to the unprofitable BNPL sector, which has been hammered by higher bond yields,” Mr Chesler said.
“Speculative technology companies which investors have favoured in the last few years have fallen significantly and will remain under pressure as yield rise. With persistent inflation, we favour those companies with strong fundamentals,” he explained.
The Zip share price had fallen to $1.60 on 18 March 2022, down sharply from $4.18 at the last re-balance on 17 December 2021. Overall, Zip shares dropped around 64 per cent over the calendar year to 23 March, compared to the S&P/ASX 200 which has been flat as bond yields rise.
VanEck’s MVW invests in a diversified portfolio of ASX-listed securities. The fund equally weights constituents across companies, reducing sector and share concentration.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
