Calling an investment “sexy” is perhaps hyperbolic, if not maybe a little silly. But when Ferrari had an initial public offering three years ago, it packed a degree of sex appeal. (Even sexier is the fact that the luxury car maker’s share price recently was up about 160% since its IPO.)
Which brings us to thematic exchange-traded funds, which have been one of the year’s story lines for this industry and, in a sense, are kind of sexy. Broadly speaking, an investment theme can be anything—local currency emerging market bonds or solar energy or rare earth metals, etc.
But in the context of the cover story of this edition of ETF Advisor magazine, thematic ETFs are those that home in on companies that are leading the charge and/or stand to significantly benefit from the so-called fourth industrial revolution that is fundamentally transforming the way the world lives and works in the 21st century. That includes sectors such as blockchain, artificial intelligence, big data analytics and robotics. It can also include cybersecurity, which essentially is about protecting us from the nefarious underbelly of one of the major achievements of the third industrial revolution.
It seems there’s been a new thematic ETF launched just about every week this year, sometimes accompanied by great fanfare. But financial advisors and investment managers know they need a thoughtful, disciplined approach to thematic ETFs in order to maximize the potential benefit these products can bring to investment portfolios. The cover story discusses the ways some advisors and money managers vet and deploy these funds for clients.
Other articles in this edition examine ETFs focused on two different types of income-oriented approaches: ultra-short bonds and closed-end funds. Regarding the former, the combination of two factors—attractive yields and low fees that enable them to be a cash management alternative, along with low duration risk in a rising rate environment—make them an intriguing option.
As for ETFs filled with closed-end funds, they crank out sizable dividends but are complex vehicles that require a fair amount of research and babysitting. Are they worth it? Please read our article to find out.