Thematic ETFs are currently all the rage. During today’s ETF Report on Yahoo Finance Live’s The Ticker, ETF Trends CEO Tom Lydon joined host Kristin Myers in a discussion on why investors are flocking to thematic ETFs.
In discussing how working from home can help investors, Lydon noted how before 2020, some of the top thematic ETFs were focused on Robotics, AI, Cybersecurity, and Clean Energy. Now, with 54% of companies in the U.S. plan on making working from home a permanent option, it has shown that working from home is great for recruitment, and it has increased productivity.
One of the newest ETFs to hit the market to tap into this trend is the Direxion Work From Home ETF (WFH).
WFH launched two weeks ago and has over $50 million in assets already. It includes four pillars in its index that includes cloud computing, cybersecurity, online project management, and remote communications.
According to Lydon, “The big thing Wall Street is betting on when this is over, and hopefully it’s sooner rather than later, is that we will all be better for what we have learned from a technology standpoint because we’re surely not going back.”
Looking at this as a strategy, and based on the themes that seem to help insulate investors from volatility and risks that have been seen in the market over the past couple of days and weeks, Lydon made it clear that individual investors have been having some fun betting from home. However, in this situation, WFH has 40 different, equally-weighted stocks.
“The whole idea here is that you’re betting on a theme, and it’s well balanced,” Lydon adds. “Periodically, it’s readjusted and balanced again. Sometimes stocks will get kicked out of the index. Other times, new stocks come in based on what they are proving or what the strategy is in this ETF.”
Highlight: @ETFtrends CEO @TomLydon on the $WFH ETF: “The big thing that Wall Street is betting on is when this whole thing is over… we’re all going to be better for what we’ve learned from a technology standpoint because we’re surely not going back.” Full interview: pic.twitter.com/VsjTjjG7qT
— Yahoo Finance (@YahooFinance) July 16, 2020
A Wealth Of Thematics
Lydon also explained how WFH is just one of the popular thematic ETFs on the market. Others include the Global X Cloud Computing ETF (CLOU), the Principal Healthcare Innovators ETF (BTEC), and the Ark Innovation ETF (ARKK).
“All of these technology companies in this new world that we’re in have sped up their timelines. So, investors, in searching for the right ETF, making sure it’s diversified, can participate in this sped-up technology world that we’re in,” Lydon added.
In terms of why financials and banks aren’t as favorable an investment compared to thematics right now, Lydon notes how everything going on with the market is essentially going to be drawn out. The recession that’s been seen is going to continue to evolve.
Banks are less buoyed by trading and investment banking. There is more exposure to loan losses. If there is a case where investors feel the worst is over, buy the regional banks via KRE as it’s more tied to loan exposure and more diversified than XLF, which is dominated by the big banks who have trading and investment banking to diversify negative exposure.
For more market trends, visit ETF Trends.