3 Thematic ETFs for Investors to Bet on in Q4 | ETF Trends

On Monday, the S&P 500 Index notched a new closing low for 2022, presenting an attractive entry point for long-term investors.

Advisors can enhance a portfolio with an allocation to a thematic ETF focused on innovations within the technology sector. The pandemic has unveiled how technology can reimagine companies’ operations, with many people continuing to work from home, using technology in different ways, according to Todd Rosenbluth, head of research at VettaFi.

“Thematic ETFs provide more targeted exposure than sector ETFs to potentially fast-growing long-term trends that have been accelerated since the initial emergence of COVID-19,” Rosenbluth said. 

  1. The ALPS Disruptive Technologies ETF (DTEC)

DTEC is the least expensive on the list, charging just 50 basis points for its unique methodology. The fund has $115 million in assets under management. 

The fund covers 10 different themes within the tech sector: healthcare innovation, the internet of things, clean energy and smart grid, cloud computing, data and analytics, fintech, robotics and AI, cybersecurity, 3D printing, and mobile payments, all with a focus on disruptive technologies and innovation. 

DTEC selects 10 companies from each theme according to a proprietary model and equally weights each security, effectively giving each theme and each company equal representation. This methodology results in much more balanced exposure to the sector, which is notorious for being extremely concentrated in just a few mega-cap names.

  1. The First Trust Cloud Computing ETF (SKYY)

Incepted in 2011, SKYY was the first ETF to offer exposure to the cloud computing industry, a narrow segment of the technology sector that involves a fast-growing application. SKYY has garnered $3 billion in assets under management and charges 60 basis points.

SKYY is one of the most targeted sector funds on the market, making it a tool for fine-tuning portfolio exposure. This ETF can be useful for making short-term tactical plays, but it could also have appeal as a minor complementary holding in a longer-term buy-and-hold portfolio.

In addition to investments in smaller, pure-play cloud computing companies, SKYY makes allocations to larger firms that are involved in the cloud computing space but derive the majority of their revenues from other operations. This feature may diminish the relationship between the growth of the cloud computing space and the performance of the cloud computing ETF.

  1. The Global X Robotics & Artificial Intelligence ETF (BOTZ) 

BOTZ, which has $1.2 billion in assets under management, invests in an index of companies that stand to benefit from the increased adoption of automation, robotics, and artificial intelligence.

Part of the Global X suite of niche thematic ETFs, BOTZ’s top holdings includes Keyence Corp, ABB Ltd, and Fanuc Corporation. At 68 basis points, the BOTZ management fee is high for passive funds, but niche products aren’t designed to be core portfolio products for set-it-and-forget-it investors. Micro-sector funds are geared for medium-term tactical wagers of weeks or months, according to VettaFi.

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