On the most recent episode of ETF Prime, VettaFi’s President Tom Hendrickson discusses the firm’s recent acquisition of the ROBO Global Index suite and highlights the latest thematic ETFs engagement data on the platform. Later in the episode, etf.com’s Sean Allocca discusses finalists for their annual industry awards, and Eddy Elfenbein, portfolio manager and editor of the Crossing Wall Street blog, explains the ins and outs of the AdvisorShares Focused Equity ETF (CWS), which is based on Crossing Wall Street’s “Buy List.”
How ROBO Global Complements VettaFi
Last week, VettaFi announced it had acquired the ROBO Global index suite. The indexes focus on helping investors capture the opportunities of robotics, artificial intelligence, and healthcare technology companies around the world. The suite includes the first benchmark indexes tracking the robotics and AI revolution for investors.
Speaking with host Nate Geraci about the ROBO Global Index suite acquisition, Hendrickson explained that there are “a lot of things that worked very well in our business,” which made the suite a good fit with VettaFi.
“We have been admirers of that index suite from afar for a long period of time,” Hendrickson said. “They’re true pioneers, the team that built the suite of indexes.”
When the ROBO Global indexes were first launched back in 2013, “there weren’t a lot of conversations about some of the exposures and themes and companies that are included in this index.” So, VettaFi was drawn to the innovation that the indices provided, as well as the “client-centric mindset” at ROBO Global and its “rigorous expert-led, data-driven research process,” which Hendrickson said was “near and dear to our hearts as it relates to our energy suite.”
“It’s complementary to our business. It adds depth and breadth of our index lineup, especially in the thematics space,” he said before adding that the acquisition also gives VettaFi “exposure to some new markets,” including the European and Australian markets.
VettaFi has a broad array of nearly 1,000 indexes that underpin nearly $17 billion of investment products. “We have an offering that’s quite broad and now complemented by the ROBO suite,” Hendrickson added.
The Nascent Thematic ETF Space
Thematic ETFs were all the rage in 2021 but came back to earth last year when the markets soured. Now, there are about 270 thematic ETFs on the market with around $80 billion in assets. While that’s down from the $140 billion in assets that thematic ETFs held at the end of 2021, Hendrickson said that this is still well above the $20 billion to $30 billion in assets the space held prior to early 2020, and that the “democratization and access that the ETF wrapper” provides “blows my mind.”
“The end investor is winning when there’s more choice,” he added.
Hendrickson explained that, despite 2022 being “a really horrible year,” the outflows that thematic ETFs experienced last year “were a lot less than you might expect given the underperformance.”
Plus, not all things are created equal in the thematics space. Breaking down the roughly 270 or so thematic ETFs in the market, Hendrickson said that “most of those are still quite nascent,” with about 180 of them having less than $100 million in assets, and only about 17 having more than $500 million.
“It’s really interesting to see how this space has grown, and I think that there’s more on the horizon as we think about broader adoption and continued innovation,” he said.
Having said that, Hendrickson noted that, according to a recent poll conducted by VettaFi, more than 55% of financial advisors said they didn’t have any allocation to thematic growth, while only 14% had more than 5% allocated to this space.
“It just struck me as, although there’s more options within this space, certainly in the ETF wrapper… It seems like there is more opportunity for growth more broadly as the adoption doesn’t seem as well penetrated as it might … two, three, four, five years down the road,” he said.
The Most (and Least) Engaging Themes
Later in the episode, Geraci and Hendrickson talk about some of the things that stood out from the latest thematic ETF engagement data on VettaFi’s platform, which tracks more than 30 different sub-themes. The first thing that jumped off the page for Hendrickson using the VettaFi Explorer tool was a “saw 6x spike in that robotics and AI theme early in January,” no doubt driven by all the press coverage “around ChatGPT and other large language models.”
Hendrickson found this interesting for two reasons. One, while it’s since come down from that massive spike, it’s still “sustained about two times the interest” among financial advisors when he looked at the data from 2022. And two, “it was actually a pretty good foreshadowing of some of the flows that followed.”
VettaFi’s president pointed out that “there’s lots of other ways to get exposure to this space,” from the Global X Robotics & Artificial Intelligence ETF (BOTZ) to the ARK Autonomous Technology & Robotics ETF (ARKQ) to the First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT).
The blockchain theme had its highest engagement ever in the first quarter of 2023. And while there’s a lot happening to drive that, Hendrickson found that for this theme “to have a higher amount of advisor engagement than it did in some of those late 2021 quarters was really interesting.” Investors looking to enter that space can do so via funds like the Amplify Transformational Data Sharing ETF (BLOK), the First Trust Indxx Innovative Transaction & Process ETF (LEGR), and the Siren ETF Trust Siren Nasdaq NexGen Economy ETF (BLCN).
On the other side of the spectrum, the low carbon theme had its lowest level of engagement in the first quarter that VettaFi had seen across the platform for the last six or seven quarters.
“That’s not to say that it’s not a theme worth researching, but that just jumped off the page for me,” he said, adding that there are a number of different products in this space, including the iShares MSCI ACWI Low Carbon Target ETF (CRBN).
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