“You can pick any of their ETFs; they look like fantastic momentum strategies,” he says. “Will that momentum persist? Who knows. Momentum has a way of mean-reverting in dramatic fashion. In the meantime they’ve stood out from the pack.”
Brett Manning, senior market analyst at Briefing.com, concurs.
“It is the perfect strategy to have on now, if you’re looking at what I would say is the disintermediation of everything that is superfluous of the way we live our lives now. There’s a cyclical aspect to it. It’s the right time in the cycle and a few of [these funds] are the right thing for the time we live in,” he says.
Given the short lives of these funds—most are three years old or less, with only SOCL having a five-year track record—Johnson reiterates that investors shouldn’t get caught up in the near-term performance.
“If you could go back 150 years … and could create the buggy whip ETF, the buggy whip ETF would have been the SOCL ETF of the period. It’s important to understand that a lot of these thematic ETFs are fashionable by design,” he says.
It’s not that Johnson sees the concept of investing in long-term themes like e-commerce as faulty, but he points out there’s a big gap between the concept and the actual investment reality of the fund. He points to water ETFs as a prime example.
“You look at portfolios and they’re a bunch of stodgy old utility companies and maybe GE (General Electric),” he says. “There’s a huge amount of slippage between the theme, the concept and investing reality.”
Manning says he sees how an advisor might be attracted to thematic ETFs to offset ultra-safe but low-yielding holdings, but only for the right client.
“I wouldn’t pick these funds for my dad," he says. “But for my cousin who is 29, probably. These funds [Ark, Global X] look really well-managed. The implementation [of these themes] is really difficult, but I really strongly believe in a lot of these themes over the long term on a core conceptional economic basis,” he says.