Popular thematic ETFs in the US: your guide to investing in future trends

Remember when smartphones changed everything? Or when cloud computing transformed how businesses work? These weren't just tech upgrades – they were investment goldmines for those who spotted the trends early.

Today, you don't need to pick individual winners to profit from emerging trends. Thematic ETFs let you invest in entire themes that shape our future. From artificial intelligence to clean energy, these funds help you capture tomorrow's growth stories today.

Let's explore how thematic investing works and which funds deserve your attention.

What distinguishes thematic ETFs from traditional funds?

Think of regular ETFs as buying a slice of the entire stock market. They track broad indexes like the S&P 500, giving you exposure to hundreds of companies across all sectors.

Thematic ETFs work differently. They focus on specific trends, technologies, or themes that have the potential to reshape industries. Instead of owning a bit of everything, you own companies driving particular changes in our world.

Thematic mutual fund, simplified: A thematic fund invests in companies connected by a common theme rather than geography or market size. Whether it's cybersecurity, robotics, or renewable energy, these funds target businesses positioned to benefit from specific trends.

For example, a cloud computing thematic ETF invests in companies such as Microsoft, Amazon, and smaller cloud specialists. You gain diversified exposure to the entire cloud revolution without having to pick individual winners.

How thematic funds differ from traditional sector funds

You might wonder: aren't thematic funds just sector funds with fancy names? Not quite. Understanding the difference between thematic funds and sector funds helps clarify the distinction.

Sector funds invest in established industry categories, such as healthcare, technology, or finance. They encompass all companies in that sector, regardless of their specific focus or level of innovation.

Thematic funds cut across multiple sectors to target specific trends. A robotics thematic fund might own:

• Technology companies making AI chips
• Industrial firms building robots
• Healthcare companies using surgical robots
• Automotive manufacturers developing autonomous vehicles

This cross-sector approach captures trends that traditional sector investing might miss.

Why thematic investing appeals to modern investors

Easier trend participation: I love the idea of autonomous vehicles, but I'm unsure which company will win. A robotics thematic ETF lets you participate without picking individual stocks.

Built-in diversification: Instead of betting everything on one company, you spread risk across multiple players in the same theme. If one company stumbles, others might still deliver strong returns.

Professional fund managers research trends, select companies and rebalance holdings automatically. You benefit from their expertise without having to do the heavy lifting.

Lower barriers to entry: Many thematic ETFs allow you to start with as little as one share. You don't need thousands of dollars to access emerging trends.

Understanding the trade-offs

Thematic ETFs aren't perfect. Here's what you should know:

Higher costs: While broad market ETFs may charge 0.03% annually, thematic ETFs typically cost between 0.5% and 0.75%. This higher fee reflects the specialised research and active management required for this investment.

Higher volatility-focused themes can swing more dramatically than diversified indexes. A cybersecurity ETF may surge during a significant data breach but struggle during quieter periods.

Unlike S&P 500 ETFs, which track their index, many thematic funds create their indexes. This makes performance comparison more challenging.

Trend risk: Not every theme works out. Remember the dot-com boom? Some trends fade while others transform the world.

Top thematic ETFs reshaping investment portfolios

Let's examine the most popular thematic funds and what makes them attractive:

First Trust Cloud Computing ETF (SKYY)

Cloud computing changed how we store data, run software, and scale businesses. This fund captures that transformation.

The story: Launched in 2011 when cloud computing was still emerging. Early investors watched their $20.16 initial investment grow to $110.50 over the past decade.

What it owns: 66 companies ranging from giants like Microsoft and Amazon to specialists like DigitalOcean and MongoDB. This mix provides exposure to both established cloud leaders and emerging players.

Why it matters: Cloud spending continues to grow as businesses digitise their operations. This fund positions you to benefit from that ongoing shift.

Assets under management: $6.5 billion

ARK Innovation ETF (ARKK)

This actively managed fund targets "disruptive innovation" – technologies that have the potential to change how we live and work dramatically.

The story: Led by famous fund manager Cathie Wood, who actively picks stocks she believes will drive future innovation. Unlike passive ETFs that track indexes, this fund makes active bets on breakthrough technologies.

What it owns: Companies like Tesla (electric vehicles), Teladoc (telemedicine), Unity Software (gaming platforms), Roku (streaming), and Coinbase (cryptocurrency). The holdings change as Wood identifies new opportunities.

Why it's popular: High-conviction investing in transformative technologies, when the fund's themes are successful, returns can be spectacular. When they don't, losses can be significant.

Assets under management: $25.5 billion. Expense ratio: 0.75%

Global X Robotics & Artificial Intelligence ETF (BOTZ)

Robots and AI aren't science fiction anymore – they're reshaping manufacturing, healthcare, transportation, and countless other industries.

The story: Launched in 2016 as AI and robotics started moving from labs to real-world applications. The fund has delivered 20% annual returns since inception, reflecting the rapid growth in these technologies.

What it owns: 36 companies, including AI chip leader NVIDIA, surgical robot maker Intuitive Surgical, and automation specialist ABB. The fund spans multiple industries using robotics and AI.

Investment thesis: As labour costs rise and technology improves, more companies will adopt robotic and AI solutions. This fund captures that broad transformation.

Assets under management: $2 billion. Expense ratio: 0.68%

First Trust NASDAQ Cybersecurity ETF (CIBR)

Every company needs digital protection. As cyber threats grow, cybersecurity becomes essential infrastructure.

The story: Launched in 2015 as data breaches made headlines. The fund's symbol, CIBR, perfectly represents its focus – cyber security protection.

Performance: The initial $20 investment has grown to $51.12, reflecting the increasing importance of digital security.

What it owns: 36 cybersecurity specialists, including Palo Alto Networks, CrowdStrike, and Okta. These companies protect networks, devices, and data from cyber threats.

Long-term outlook: Digital transformation creates more attack surfaces. Cybersecurity spending is expected to grow as companies prioritise the protection of their digital assets.

Assets under management: $4.98 billion. Expense ratio: 0.60%

iShares Global Clean Energy ETF (ICLN)

Climate change drives massive investment in renewable energy. This BlackRock-sponsored fund captures that transition.

The story: Tracks global clean energy companies across solar, wind, and other renewable technologies. As governments push for carbon neutrality, these companies benefit from supportive policies and growing demand.

What it owns: Vestas Wind Systems (wind turbines), Orsted (offshore wind), Enphase Energy (solar technology), NextEra Energy (renewable utilities), and SolarEdge Technologies (solar equipment).

Investment case: Energy transition represents one of the most significant investment opportunities in history. This fund provides broad exposure to companies driving that change.

Assets under management: $5.96 billion. Expense ratio: 0.42%

Direxion Semiconductor Bull (SOXL) and Bear (SOXS) ETFs

These leveraged funds amplify semiconductor industry moves by 3x – both up and down.

How they work: SOXL delivers 3x the daily performance of semiconductor stocks. SOXS provides 3x inverse performance, profiting when chip stocks fall.

What they own: Major semiconductor companies like NVIDIA, Broadcom, Intel, Qualcomm, and Texas Instruments.

Important warning: These are short-term trading tools, not long-term investments. The 3x leverage magnifies both gains and losses dramatically. Only experienced investors should consider these funds.

SOXL expense ratio: 0.99% SOXS expense ratio: 1.11%

Building your thematic investing strategy

Start small and diversify. Don't put all your money in one theme. Spread investments across 3-5 different thematic areas to reduce concentration risk.

Mix themes with broad market exposure. Keep 60-70% of your portfolio in diversified index funds. Use thematic ETFs for 20-30% to add growth potential without excessive risk.

Think long-term. Themes take time to mature. Cloud computing took over a decade to dominate business operations. Give your thematic investments time to work.

Monitor expense ratios. Higher fees compound over time. Compare expense ratios among similar thematic funds and choose cost-effective options when possible.

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Getting started with thematic ETFs from India

Indian investors can access these US thematic ETFs through platforms like Winvesta. You get exposure to global trends that might not be available in Indian markets.

Process simplified:

• Open an international investment account
• Fund your account with rupees
• Buy thematic ETFs just like Indian stocks
• Monitor performance and rebalance as needed

Tax considerations: US ETF investments have different tax implications than Indian mutual funds. Consult a tax advisor to understand reporting requirements and optimal holding strategies.

The future belongs to companies solving tomorrow's problems. Thematic ETFs help you participate in that future without becoming a stock-picking expert. Whether you believe in artificial intelligence, clean energy, or cybersecurity, there's likely a thematic fund that matches your conviction.

Start exploring these investment themes today. The trends shaping tomorrow's world are creating today's investment opportunities. With thematic ETFs, you can position your portfolio to benefit from the changes ahead while maintaining the diversification that smart investing requires.

Through platforms like Winvesta, accessing over 4,500 US stocks and ETFs has never been easier for Indian investors. Your global investment journey starts with understanding the themes that will define our future.

Frequently asked questions about thematic ETFs?

1) What is the most popular ETF in the US?

The Vanguard S&P 500 ETF (VOO) is consistently the most popular ETF in the US, tracking the performance of the S&P 500 index

2) What is a thematic ETF?

A thematic ETF is an exchange-traded fund that invests in companies linked to a specific theme, trend, or sector—like technology, clean energy, or healthcare—rather than tracking a broad market index.

3) Which ETF does Warren Buffett recommend?

Warren Buffett recommends low-cost S&P 500 index funds, such as the Vanguard S&P 500 ETF (VOO), for most investors due to their diversification and low fees.

4) Is it good to invest in thematic funds?

Thematic funds can offer high growth potential by tapping into emerging trends, but they carry higher risk and less diversification than broad market funds. They may suit investors with strong convictions about a theme and higher risk tolerance.

Disclaimer: This is for information only—not investment advice. Consult a financial advisor before making decisions.