The number of assets allocated to thematic exchange traded funds ballooned in recent years. Undoubtedly, these products are pioneers in various investment niches, some of which were previously hard to reach or outright inaccessible to ordinary investors.
Still, critics assert that thematic ETFs come to market when the underlying themes are reaching tops, and as such, these funds aren’t appropriate for many investors. That’s a matter of debate and investors’ personal levels of risk tolerance. Good news: There are ETFs that offer inroads to thematic investing without focusing on a specific theme. That group includes the Invesco NASDAQ Next Gen 100 ETF (QQQJ).
QQQJ is a relative of the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), meaning it has disruptive and thematic traits in its DNA. However, QQQJ doesn’t require investors to make an individual thematic bet. That’s beneficial for investors who don’t want to engage in theme timing.
“Thematic investing has become a compelling way for investors to align portfolios with the trends shaping the future,” according to BlackRock research. “A spectrum of long-term and short-term themes are increasingly influencing which companies lead the way as economies grow and markets evolve. The top themes over the last four years capture nearly 25% of US equity market returns on average, a trend that’s accelerated since the emergence of COVID-19 in 2020.”
Home to 88 stocks, about 85% of which are mid-cap names, QQQJ puts investors at the center of various themes. That much is confirmed by a 42.45% weight to technology stocks. QQQJ’s holdings from that sector include chip names, clean energy equities, fintech, and cloud computing stocks, among others.
QQQJ’s tech breadth is just one example, but it underscores what could be a compelling long-term trajectory for the ETF.
“Our research also indicates that themes have the potential to deliver differentiated alpha when used alongside other investment strategies. A hypothetical US thematic portfolio using a systematic approach demonstrates an average excess return correlation of -0.06 to the largest strategies in the U.S. Large Blend category and -0.02 to US factors,” added BlackRock.
QQQJ further cements its thematic opportunity set with a 16.51% healthcare allocation. That sector has deep disruptive potential not only because of the innovative ways of biotech and medical device makers, but also because healthcare is increasingly intersecting with other marquee investable themes such as artificial intelligence and software.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.