There’s no denying we’re surrounded by transformative forces that are reshaping the global economy, society and business. From cloud computing to gene therapy, 3D printing and other novel technologies, there are major trends now underway. How do advisors capture these trends in client portfolios?

The ETF industry’s answer is thematic focused funds. These types of funds are typically concentrated in a handful of stocks tied to emerging technologies or breakout business segments. Unlike sector ETFs, which are taken from broader index benchmarks, thematic ETFs are either actively managed or linked to newly created indexes.

The proliferation of thematic ETFs started back in 2014 with the introduction of the now famous ARK Innovation ETF (ARKK). Since its inception, ARKK has racked up an impressive gain of 526.48% (not including dividends) while the Invesco QQQ ETF recorded a 283.94% gain and the SPDR S&P 500 ETF (SPY) scored a 145.43% gain.

The latest entrant is the Amplify Thematic All-Stars ETF (MVPS). Introduced on July 21, 2021, Amplify dubs this fund its first “core thematic ETF.” The fund takes holdings data from other thematic ETFs to determine which specific themes are the most important and allocates its equity exposure accordingly. 

Its yardstick is the ETF All-Stars Thematic Composite Index, which, according to Mike Akins, CEO and founding partner of ETF Action, is “the first-ever strategy to leverage the growth and transparency of thematic ETFs to establish a consensus view on which companies best align with innovative trends across the world economy.”

BlackRock, manager of the iShares suite of ETFs, has identified five megatrends it believes are reconfiguring the global landscape. This includes climate change and resource scarcity, people’s longer life spans, the growing consumer wealth in emerging market countries, rapid urbanization, and technological breakthroughs like internet connectivity. 

While they might be promising, single themes can sometimes sputter. For example, the cybersecurity arena was once a hot theme, but its performance hasn’t lived up to high expectations.

The ETFMG Prime Cyber Security ETF (HACK), one of the oldest cybersecurity ETFs, has gained just 136.81% during the past five years, lagging the 241.71% gain of the Technology Select Sector SPDR ETF (XLK). The latter is linked to information technology stocks within the S&P 500.

The advantage of multi-theme ETFs is how they avoid the boom-bust behavior often associated with emerging themes. And it’s their diversified approach to various themes that allows advisor-managed portfolios to benefit from the unfolding trends.

Common themes within thematic ETFs include artificial intelligence, blockchain technology, clean energy, e-commerce, gene therapy and space exploration.

The Direxion Moonshot Innovators ETF (MOON) is another recently launched thematic ETF.

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