Dynamism and fast growth have become the key features of the ETF industry over the last few years. The U.S. ETF market alone boasts a size of over $3.11 trillion, derived from over 2,040 exchange traded products.
While this joy-ride deserves a big round pf applause, crinkles of worries must be there on the foreheads of issuers. After all, with such enormous progress, the industry will eventually fall short of newer concepts. There is always the pressure to beat the benchmark, navigate tough times and of course outdo peers.
In any case, the days of plain vanilla ETFs or market-cap weighted ETFs are long gone. Products with several wining attributes, like low volatility or high dividend, commonly called smart-beta ETFs are in fashion. But that place has also been filling up slowly.
This where the concept of thematic ETFs starts to bloom. Plus, issuers always want to cash in on long-term prospects. Probably, this is why issuers are fine tuning smart beta concepts to make them smarter and opting for theme-based products. "With 447 funds worth nearly $78bn, thematic investing is more popular than ever," as per financial times (read: Can Goldman Dominate the Smart Beta ETF Industry?).
Why Thematic Investing is a Good Long-Term Bet
Today, several corners of the society or generation or culture have an ETF. Be it millennials, be it health and wellness or longevity or obesity, be it robotics, Internet of Things, drones, workplace equity or even gender diversity, there is an ETF for everything (read: 5 Millennial Friendly ETF Investing Ideas).
Issuer Global X is quite active on this front. As per Global X, its family of thematic ETFs looks to track companies that reap returns from "structural changes in people and demographics, technology and innovation, and natural resources, along with companies that exhibit a particular set of desirable values."
As we can see that the above-mentioned criteria are long-term in nature (as noted by Global X and several other analysts). Some are non-cyclical in nature and are less susceptible to a sudden jerk in the market, emanating from some geo-political crisis or economic policy changes. Instead, these factors look to cash in on some emerging trends in the global economy. As an investor, you should go ahead with a product, only if you have faith in the particular segment it belongs.
Take Health and wellness for example. "Emerging markets will have to implement better healthcare', as per, the manager at Pictet Asset Management's Pictet-Health fund, as quoted on Financial Times. This trend should help the Global X Health & Wellness Thematic ETF (NASDAQ:BFIT) over the long term.
Socially-Responsible - Another Winning Theme
Then there are socially responsible ETFs. As per the latest data by Morningstar, 70% of all investors are interested in socially responsible products, and more than 80% of millennials to share this onus while making investment decisions.
And with millennials seemingly being the growth driver of the U.S. economy, outpacing baby boomers in 2015 and comprising more than a quarter of the nation's population, their investing preferences are sure to be at the top of issuers' minds.
Thematic ETFs that Beat the SPDR S&P 500 Trust ETF (SPY) or Returned Close it
In the last six months, the following thematic ETFs beat the SPY 500-based ETF in terms of returns or were almost in line with the big index fund.
- Global X Millennials Thematic ETF (NASDAQ:MILN)
- Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ)
- Global X Longevity Thematic ETF (NASDAQ:LNGR)
- Robo Global Robotics & Automation ETF (NASDAQ:ROBO)
- The Obesity ETF (NASDAQ:SLIM)
- Global X Internet of Things Thematic ETF (NASDAQ:SNSR)
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