VanEck has deleted Zip Co, Magellan Financial, Eagers Automotive, Reliance Worldwide and Downer EDI from its Australian Equal Weight ETF due to falling share prices and rising bond yields.

The fund dropped the five companies on 18 March, leaving 89 companies in the ETF, to avoid exposure to pockets of the market that will be hurt by increasing interest rates.

“A notable deletion was Zip, whose share price has plummeted this year, belonging as it does to the unprofitable buy now, pay later (BNPL) sector, which has been hammered by higher bond yields,“ head of investments and capital markets at VanEck, Russel Chesler said today.

Zip Co is down 62.4 per cent since the start of the year to $1.63 today. Magellan Financial Group has dropped 30.7 per cent to $14.72, Downer EDI is down 11.2 per cent, and Reliance Worldwide is down 32 per cent. However, Eagers Automotive is up 1.3 per cent since the start of the year.

The yields on 10-year Australian government bonds is up to 2.77 per cent today, the highest level since October 2018, he added.

“The momentum at the moment is strong, and we anticipate the 10-year bond yield will climb over 3 per cent in the short term.”

“Speculative technology companies which investors have favoured in the last few years have fallen significantly and will remain under pressure as yields rise. With persistent inflation, we favour those companies with strong fundamentals.”

VanEck did hold as much as 3.4 million shares in Zip at the end of 2021, putting it in the top 20 shareholders. It’s holding of Magellan Financial has dropped from 790,277 shares at the end of last year to just under 200,000 currently.