Over the past few years, thematic ETF investing has grown significantly. Of the 151 ETFs launched in 2018, 22 were thematic.
Thematic ETFs now represent close to $62 billion in assets or about 2% of all US ETF assets. They also tend to have relatively high fees with an average weighted expense ratio (AWER) of 0.62%, which is more than three times the 0.20% AWER for the overall industry. This movement toward thematic is truly what the TETF.index committee refers to as an innovation growth factor for both assets and revenue within the ETF ecosystem.
What is a Theme?
Within the ETF Think Tank security master, we define thematic ETFs as: An ETF that seeks to provide exposure to a trend or developing business model through the compilation of securities from multiple sectors. Themes are often global and encompass multiple businesses within the supply chain supporting the global growth trend.
Thematic investing is usually global, but can target specific geographies. Also, most thematic ETFs are non-traditional indexes (we killed Smart beta last week), but there are a few are constructed utilizing the traditional index processes.
How are Thematic ETFs Used?
Within the ETF Think Tank we have identified three primary uses for thematic ETFs.
1. Exposure to a Global Growth Trend
These ETFs look to provide investors access to the performance of a global growth trend that doesn’t meet the traditional definitions of a sector or industry. These themes are often transformational, but encompass multiple sectors like the ROBO Global® Robotics and Automation Index ETF (ROBO) or ETFMG Prime Cyber Security ETF (HACK).