As of the end of September, thematic ETFs made up 1.2% of the US ETF market, representing $59 billion in assets. Asset growth of 42% from the prior quarter easily exceeded the industry’s 7% growth. According to asset manager Global X, thematic investing refers to the process of identifying powerful, disruptive macro-level trends and the underlying investments that stand to benefit from the materialization of those trends. At the end of the third quarter, there were 135 such thematic ETFs, with six new funds including AdvisorShares Pure US Cannabis ETF (MSOS), Direxion Connected Consumer ETF (CCON), Global X Telemedice & Digital Health ETF (EDOC). No thematic ETFs closed during the third quarter.
Global X has grouped the 135 available thematic ETFs offered by a wide range of providers into three categories, ten mega-themes, and approximately three dozen themes. These mega-themes include big data, climate change, connectivity, health, and robotics. CFRA thinks thematic ETFs provide targeted exposure and the benefits of diversification as not all companies connected to powerful, disruptive macro-level trends will succeed as winning investments.
In the third quarter, big data ETFs such as First Trust NASDAQ CyberSecurity (CIBR) and Global X Cloud Computing (CLOU) helped power the mega-theme to $12 billion in assets, up from $10 billion a quarter earlier. Meanwhile, assets of climate change mega-themed ETFs rose to $8.3 billion, from $5.1 billion aided by combined $3 billion of net inflows from Invesco Solar ETF (TAN) and Invesco Global Clean Energy ETF (ICLN). These ETFs provide access to U.S. and international stocks but offer unique exposure when CFRA looks at the ETF holdings.
Health was another popular mega-theme with actively managed ARK Genomics Revolution ETF (ARKG) nearly doubling in size to $2.3 billion with approximately $650 million of net inflows and the benefits of stock performance. Index-based Invesco Dynamic Biotechnology & Genome ETF (PBE) and iShares Genomics Immunology and Healthcare ETF (IDNA) are examples of other ETFs in the sub-category.
CFRA believes that we remain in the early stages of thematic ETF growth as investors find the benefits of long-term strategies without the single security risk of the past. These ETFs tend to charge a premium relative to the broader sector ETFs such as Health Care Select Sector SPDR (XLV) and Vanguard Information Technology ETF (VGT) but have more targeted exposure and greater chances to outperform or underperform the broader market.
Join CFRA for an upcoming webinar on October 14 on how to use thematic ETFs to benefit from the new normal of a Covid-19 world. Visit: https://go.cfraresearch.com/globx-theme