Exchange-Traded Funds (ETFs) are popular forms of passive investing that one can consider to diversify their investment portfolio. Compared to the rest of the world, ETFs are very popular in the US. As you would know, an ETF is a collection of various securities that often track an underlying asset, sector, or index.
But is an ETF only confined to benchmark indices like the S&P 500 or the Dow Jones? Nopes. Various ETFs are available for specific asset classes that you can consider to track a particular theme. These are known as Thematic ETFs.
From US treasuries to Gold, blockchain to cloud computing, and clean energy to cybersecurity – if you can think of a theme, there’s an ETF for that. Even ESG, an investment philosophy slowly finding its place among the investor community, has specific ETFs.
The major advantage of investing in a thematic ETF is the ease of investing. Investors who like a particular theme but do not wish to analyse individual companies can participate in the theme through ETFs. If you like cloud computing, you can buy an ETF and get diversified exposure to the industry without the concentrated risk of a single company. As with all the ETFs, thematic ETFs also take care of rebalancing the stock weights automatically.
Thematic ETFs can be slightly more expensive than some more popular ETFs, like those based on the S&P 500. While some index-based ETFs have expense ratios of as little as 0.03%, thematic ETFs can charge between 0.5% to 0.75%.
Another downside of thematic funds is the lack of a comparable benchmark. Many thematic funds also tend to be riskier than broad indices.
Here are some popular thematic ETFs:
First Trust Cloud Computing ETF (SKYY)
This ETF invests in companies that have cloud computing as their core theme. Founded in 2011, its Net Asset Value (NAV) was $20.16 at the time of its inception. Over the last decade, the NAV has grown to $110.5. It currently has assets worth $6.5B under management. As of this month, the fund has 66 holdings, excluding cash. Top five holdings include DigitalOcean Holdings (DOCN), MongoDB (MDB), Pure Storage (PSTG), Oracle (ORCL), and Rackspace Technology (RXT). Microsoft (MSFT) and Amazon (AMZN) are also among the fund’s top holdings.
ARK Innovation ETF (ARKK)
Contrary to other ETFs, this ETF is actively managed. An actively managed ETF is where a fund manager manages the fund holdings, in this case, Cathrine Wood. The fund invests in companies linked to “disruptive innovation” or new products or services that can dramatically shift how the world works. Genomics stocks, energy, and automation technology companies are some of the themes that the fund invests in.
With an expense ratio of 0.75%, the fund is one of the most traded ETFs in the US. It currently has assets worth $25.5B under management. Top holdings include Tesla (TSLA), Teladoc Health (TDOC), Unity Software (U), Roku (ROKU), and Coinbase (COIN).
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Want to know how companies dealing with robotics and AI are faring? This is the fund for you as it seeks to invest in stocks that can benefit from both themes. The fund tracks the Indxx Global Robotics & Artificial Intelligence Index. As of March this year, the ETF had returned 20% annually since its inception in September 2016.
The fund had a total expense ratio of 0.68%, with assets worth $2B under management. It held 36 holdings under its portfolio. Top holdings include Upstart Holdings (UPST), Keyence Corp (6861 JP), NVIDIA Corporation (NVDA), Intuitive Surgical (ISRG), and ABB Ltd. (ABBN SW).
First Trust NASDAQ Cybersecurity ETF (CIBR)
This is possibly the only thematic ETF whose symbol represents what it invests in – cybersecurity companies. It tracks the Nasdaq CTA Cybersecurity Index. It invests in cybersecurity companies in the technology and industrial sectors, including those protecting networks, computers, and mobile devices.
At its inception in 2015, the fund had a NAV of $20, which has appreciated to $51.12 as of date. It has an expense ratio of 0.60% and has 36 holdings, excluding cash. It has assets worth $4.98B under management. Top holdings include Palo Alto Networks (PANW), Accenture (ACN), Cisco (CSCO), Okta (OKTA), and CrowdStrike (CRWD).
iShares Global Clean Energy ETF (ICLN)
This fund is sponsored by one of the world’s largest fund houses – BlackRock. It tracks an index of global clean energy companies, including solar, wind, and other renewable resources.
As of date, the fund has assets worth $5.96B under management and an expense ratio of 0.42%. Among its top holdings are Vestas Wind Systems (VWS), Orsted (ORSTED), Enphase Energy (ENPH), Nextera Energy (NEE), and Solaredge Technologies (SEDG).
Direxion Daily Semiconductor Bull (SOXL) and Bear (SOXS) 3X Shares
SOXL is a leveraged ETF that seeks daily investment results of 3x of the performance of the ICE Semiconductor index. SOXS is the inverse of SOXL. These magnify an investor’s short-term perspective with a
3x leverage. Of course, they are riskier alternatives to those ETFs which do not use leverage and are suitable only for sophisticated investors.
The Expense Ratio of SOXL is 0.99%, while that of SOXS is 1.11%. Top holdings include NVIDIA (NVDA), Broadcom (AVGO), Intel (INTC), Qualcomm (QCOM), and Texas Instruments (TXN).
You can invest in all of the popular thematic ETFs from India through Winvesta. Beyond these ETFs, you also get access to 4,500+ US stocks and ETFs under one platform.