The active vs. passive debate extends to thematic ETFs. Exchange-traded funds (ETFs) have become increasingly popular in recent years as an investment vehicle, with investors often embracing creativity and the ability to access niche investment themes. While the crypto and blockchain ETF craze has quietened down in recent months, thematic ETFs remain a key focus for investors.
Thematic ETFs provide exposure to niche investing themes such as robotics, cybersecurity, genomics, and medical technology. The idea is often to provide access to a societal trend without having to invest in individual stocks. Global X, a leading provider of thematic ETFs, defines thematic investing as the process of “identifying powerful disruptive macro-level trends and the underlying investments that stand to benefit from them.”
Thematic investing has always been popular with Canadian investors looking to capitalize on trends: cryptocurrencies, marijuana, clean energy, and robotics are just a few themes that have flourished in recent years. The ETF wrapper has gained widespread acceptance in the Canadian investing landscape, with investors increasingly embracing the ability to access these niche themes.
Thematic investing has become “hugely popular” in Europe — particularly during the COVID-19 pandemic — and the ETF wrapper has gained impressive traction. ETFs have become the go-to investment vehicle for thematic investing, as they offer investors access to a broad range of asset classes and sectors.
Thematic investing is not just a tech story, but I think it will still be a key trend in the ETF space. As technology continues to disrupt the traditional investing landscape, more and more investors are turning to ETFs to gain exposure to niche themes.
Five key questions to consider when investing in thematic ETFs are:
1 – What are the trends driving the thematic ETF?
2 – What is the potential growth potential for the theme?
3 – How does the thematic ETF compare to other ETFs?
4 – What are the risks associated with investing in the thematic ETF?
5 – Are thematic trends driving creation of new companies or industries?
These novel thematic ETFs offer retail investors the ability to invest like the political elite. By taking a more active approach to investing, investors can gain exposure to sectors that were previously inaccessible. With these ETFs, investors can diversify their portfolios and capitalize on trends that may not have been available in the past.
A key figure in the thematic ETF space is Daniel O'Neill, who recently joined BlackRock Canada. O'Neill had previously worked at UBS Asset Management, where he was global head of thematic investing, according to his LinkedIn page. His responsibilities included researching trends and developing thematic ETFs.
Thematic ETFs are gaining traction in the investing world as investors become more educated about the potential benefit of investing in thematic ETFs. Cybersecurity is a top spending priority for many companies and the trend is being reinforced by an increasingly strict regulatory environment.
With this in mind, investors should consider the potential of thematic ETFs as part of their overall investment strategy. By investing in these ETFs, investors can gain access to niche themes and capitalize on trends that may not have been available in the past.