By Michael Venuto

We introduced the ETF Playlist a few months back when we looked at the amount of State Owned Enterprises (SOE) infecting many emerging market ETFs. This week the ETF Think Tank dives deep into proprietary statistics on Thematic ETFs and offers up insights on four Thematic ETF Playlists. Based on our ETF Think Tank Security Master, there are currently 166 non-levered equity ETFs listed in the US. That represents $107 Billion in assets with an average weighted expense ratio of 63.5 bps. We will be speaking with State Street Global Advisors about thematic ETFs next Wednesday, December 16, on the Think Tank Exchange.

Playlist 1: Performance

Overall, this has been a great year for the performance of thematic ETFs, with many producing triple digit returns. The results are not terribly surprising when looking, with hindsight, at the winners and losers. Airlines, Leisure and Oil/Energy Services were all the bottom performers. The Winners include Clean Energy, Innovation and Online Retail; all were up over 100%. The playlist below looks at performance through December 5, 2020.

ETF Playlist Figure 1

Playlist 2: Zombie Exposure

One of the factors driving both the out-preperformance and under-performance of certain themes is their exposure to zombie industries. We have written about the concern with industry’s at risk of technological obsolesces or completely shut down by the pandemic response multiple times this year. We have also written about the themes that focus on mega-trends that have seen rapid adoption in the COVID economy. The ETF Playlist below shows the Zombie exposure for the top ten and bottom ten thematic ETFs.

ETF Playlist Figure 2

Playlist 3: Concentration

The ETF Think Tank has developed a proprietary metric to measure the concentration of ETFs. ETF Think Tank Members have access to tools that allow them to access how diversified an ETF is based on the very nerdy formula below:

ETF Playlist Figure 3

When it comes to Thematic ETFs, concentration is a key metric to determine time horizon. We recommend using ETFs with high concentration scores for short term trades, since they will likely capture the most theme beta but are often very volatile. For investors seeking long-term exposure to a theme that can compound over many years, we usually recommend going with ETFs with lower concentration scores.

ETF Playlist Figure 4

Playlist 4: SmartCost

SmartCost is another proprietary metric available to ETF Think Tank Members that allows investors to determine the cost they are paying for active share exposure. Essentially, we isolate the unique portion of an ETF versus its benchmark and then apply the difference fee versus the benchmark to the active share.

ETF Playlist Figure 5

The Playlist below helps investors determine if the fee they are paying for a theme is justifiable. In general, we suggest looking for ETFs were the SmartCost is less than or equal to the stated expense ratio.

ETF Playlist Figure 6

Originally published by ETF Think Tank, 12/9/20


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