Exchange traded funds now offer exposure to some compelling themes that investors need to watch.
In the recent webcast, Evolution and Revolution? The Role of Thematic ETFs in Today’s Portfolio, Scott Helfstein, executive director of thematic investing at ProShares, explained that we are in midst of the next evolution of the ETF universe, or what he calls ETFs 4.0, which is comprised of smart beta ETF strategies with a more focused investment objective toward specific market themes.
“Thematics started as an inside baseball term, a cottage industry of sorts, for investors who wanted to find future-oriented opportunities. Economies and markets evolve, but many of the frameworks investors apply, like sectors or cap size or growth/value, have characteristics that are static. Thematics offer investors the opportunity to invest in strategies that could focus on or target emerging or growing aspects of the economy,” Helfstein said.
For example, Helfstein highlighted stand-out themes like pet care, genomic medicare, infrastructure, social media, and gaming/e-sports, among others, as themes that have outperformed over the past year.
Helfstein explained that ProShares takes a forward-looking approach in analyzing the economic impacts created by converging transformative changes. As new enterprises and business models take shape, it’s critical to examine the drivers of earnings and future profitability to determine the dimensions of a potential investment opportunity. Once an investable theme comes into focus, the next step is to isolate companies that may benefit from the long-term theme.
For example, ProShares has come out with a suite of new thematic ETFs, including the ProShares S&P Kensho Smart Factories ETF (MAKX), the ProShares Big Data Refiners ETF (DAT), the ProShares S&P Kensho Cleantech ETF (CTEX), the ProShares On-Demand ETF (OND), the ProShares Smart Materials ETF (TINT), and the ProShares Nanotechnology ETF (TINY).
“The new funds listed earlier this month focus on the future of business, specifically the tools and technologies that companies are anticipated to need to be competitive and drive efficient operations,” Helfstein said.
MAKX is the first ETF focused on investing in companies that help businesses automate manufacturing activities by integrating physical assets with digital capabilities.
CTEX invests in companies involved in developing and building the green technologies that could power the future in areas like hydro, solar, wind, and geothermal.
DAT invests in companies that help businesses process massive amounts of data to draw competitive insights.
OND invests in companies that deliver seamless, convenient services at the touch of a button and operate in a global on-demand market projected to grow to $604 billion by 2023 as consumers increase their use of services like Spotify, Zynga, and Delivery Hero. The fund seeks investment results (before fees and expenses) that track the performance of the FactSet On-Demand Index.
TINT invests in companies that develop, research, or produce materials with properties that can adapt to external stimuli or have disruptive or pioneering properties, like temperature-sensitive coatings used in the production of aircraft wings, including companies like PPG Industries, Universal Display Corporation, and View Inc. The fund seeks investment results (before fees and expenses) that track the performance of the Solactive Smart Materials Index.
TINY invests in companies that use nanoscale technology to transform lives and revolutionize industries, with uses ranging from sunscreen to robotics, being developed by companies like Canon, nLight, and Moderna. The fund seeks investment results (before fees and expenses) that track the performance of the Solactive Nanotechnology Index.
These new thematic ETF strategies can act as peripheral satellites to augment a core position, or they may even be part of a core investment portfolio to help guide investors to the next phase of economic growth.
“Many financial professionals deploy a core satellite approach to portfolio construction and many of our funds can serve as quintessential satellites to seek to add alpha through enhanced return and diversification,” Helfstein said.
“We also see thematics deployed in core portfolios. Increasingly, many core portfolios include a thematic ‘sleeve’ for which our products fit well into. There are also core equity exposures that are driven by sector rotation approaches, and again, consistent with our discussion today, there is a place for themes in those rotation models,” Helfstein added.
Financial advisors who are interested in learning more about thematic investment ideas can watch the webcast here on demand.