Should You Invest In The Hottest Thematic ETFs? - InvestingChannel

Should You Invest In The Hottest Thematic ETFs?

Proprietary Data Insights

Top ETF Searches This Month

#1SPDR S&P 500 ETF253,963
#2Invesco QQQ143,886
#3JPMorgan Equity Premium Income ETF36,618
#4Schwab US Dividend Equity ETF35,371
#5iShares 20+ Year Treasury Bond ETF33,274
#ad It’s time you learn about Alternative Investments!

Should You Invest In The Hottest Thematic ETFs?

There’s literally an ETF for not only every sector (and sub-sector) you can think of, but every investing approach you can (or can’t) imagine. 

Last month, we assessed two ETFs that use artificial intelligence to pick stocks. Not they invest in AI stocks, but they use AI to do the stock picking. We concluded that there’s more than meets the eye to these ETFs. The returns, while not horrible, don’t necessarily make us want to run to them over more straightforward options, such as the two broad market ETFs that regularly top our Trackstar list of the ETFs investors search for most – the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ)

As we noted in relation to an ETF that uses IBM’s Watson technology to pick stocks: 

The company that markets and manages AIEQ, ETFMG, claims Watson “equal(s) a team of 1,000 research analysts, traders and quants working around the clock” by “(a)nalyzing millions of data points across news, social media, industry and analyst reports, financial statements on over 6,000 U.S. companies, technical, macro, market data and more.”


However, if we can categorize Watson like that, what would we have to say about the passive indices ETFs such as SPY, QQQ and SMH track? They’re not really workhorses. Rather, they’re just the stock market doing its thing … doing what it always seems to do over time.

Those passive indices are pretty powerful. They’ve been helping make people wealthy since inception. That would be some powerful marketing the regulators likely wouldn’t allow. 

Anyhow, while we’re skeptical of the bells and whistles ringing across the ETF industry, we’re open to them. Thematic ETFs (here’s a primer on what they are) can have a place in your portfolio. This is why The Juice keeps a close ear on what’s happening with these active ETFs.

Each week, we receive a report that shows us the hottest and top performing thematic ETF themes. Today, we figured we’d share some of the details with you. And we’re not making any judgements here. Just presenting the data and suggesting you proceed with caution anytime you’re thinking about getting fancy. 

Top performing themes of the month

  • Cannabis and Psychedelics (+48%)
  • Nuclear Energy (+13%)
  • Cybersecurity (+4%)
  • Digital Infrastructure and Connectivity (+3%)
  • Cloud Computing (+2%)

So, with the exception of the first and maybe the second one, these aren’t necessarily speculative spaces. And, while these are themes, many of the ETFs you can use to get exposure to the themes track market indices, making them passive. 

For example, to get at nuclear energy, you could buy the Global X Uranium ETF (URA), which is up roughly 26% YTD, and is super overweight in Cameco Corp (CCJ), which is up nearly 30% YTD. CCJ makes up more than 29% of URA’s portfolio. The top 15 stocks (out of 26 total) in URA comprise 83.5% of the portfolio. URA tracks the Solactive Global Uranium Index.

Just another case of what we often point out: Look under the hood to ensure you’re okay with the concentrations within indices and, subsequently, the ETFs that replicate the compositions and returns of these indices. 

Buying ETFs in the third, fourth and fifth top performing sectors gets you exposure to quite a few household names (if you’re into this stuff), such as Cisco Systems (CSCO), Broadcom (AVGO) and Palo Alto Networks (PANW) (within cybersecurity), (AMZN) and Meta Platforms (META) (within digital infrastructure and connectivity), and Oracle (ORCL) and Microsoft (MSFT) (within cloud computing).

Interesting. Seems like these sub-sectors can be, at least, an end around, if not a direct line into buying some of the best AI stocks the market has to offer

In terms of top trends in terms of popularity. This is where you have to be careful. Sort of. 

One of the most popular thematic trends of the month is Equality, Inclusion & Diversity. Within it, you’ll find ETFs such as the SPDR MSCI USA Gender Diversity ETF (SHE), which tracks the MSCI USA Gender Diversity Select Index, and the Fidelity Women’s Leadership ETF (FDWM), which is an actively-managed fund. 

SHE’s holding slate looks like a who’s who of the stock market with everybody from AMZN to MSFT to Apple (AAPL) included. SHE is up about 13% YTD. Meanwhile, FDWM is up 12% and owns a broad array of names ranging from MSFT to Mastercard (MA) to Salesforce (CRM). Not the all-star assortment of SHE, but still a pretty well-known and impressive batting order. 

But, here again, why get cute when you can get the broad market in SPY (up ~17% YTD) and QQQ (up ~42% YTD) and you can get at AI via the VanEck Semiconductor ETF (SMH) (up ~50% YTD)? 

Okay. Sorry. We made a few judgments. 

The Bottom Line: The ETF world is as much about marketing as anything else. Themes such as Equality, Inclusion & Diversity attract people with an affinity for the cause. Or whatever they perceive to be the cause. All fine and good, but if you’re going to buy the same or a similar slate of stocks in SPY or QQQ as SHE, why get too cute? 

It just doesn’t make any sense. While many of these ETFs sound great, they’re not reinventing the wheel. Do your homework. Look up holdings. Make comparisons. Look at expense ratios. And take it from there. 

Also, consider Start Here To Build A Killer ETF Portfolio and How To Construct Your ETF Portfolio for ETF picks and helpful tips.

Want to get content like this directly to your inbox? Then we urge you to sign up for our newsletter here

Related posts

Advisors in Focus- January 6, 2021

Gavin Maguire

Advisors in Focus- February 15, 2021

Gavin Maguire

Advisors in Focus- February 22, 2021

Gavin Maguire

Advisors in Focus- February 28, 2021

Gavin Maguire

Advisors in Focus- March 18, 2021

Gavin Maguire

Advisors in Focus- March 21, 2021

Gavin Maguire