Thematic ETFs See Growth

What Is a Thematic ETF?

An exchange-traded fund, or ETF, is a kind of security that consists of a compilation of individual securities, like a group of stocks or collection of bonds. ETFs are like mutual funds in some ways, but they are listed on exchanges and trade just like regular stocks.

Thematic ETFs are funds that tend to focus on long-term trends—for example, patterns in consumer behavior or climate change. Ecommerce, electric vehicles, and the gig economy are examples of themes that might drive thematic ETFs.

The Rise of Thematic ETFs

During 2020’s second quarter, thematic ETFs grew three times as quickly as the rest of the ETF industry. 89 out of the 129 thematic ETFs on the market have outperformed the S&P 500 year-to-date, with an average return rate of 17%.

Thematic ETFs have seen significant growth in recent years. In 2015, there were only about 40 thematic ETFs managing $5 billion in assets. Now, just five years later, about $41 billion is invested in thematic ETFs.

Analysts have noted that the ongoing COVID-19 pandemic may make thematic ETFs even more attractive to investors because so many trends are changing at the moment.

Investing in Thematic ETFs

Thematic ETFs can be a great way to invest in a changing world. However, like any investment, they are not without their risks.

Most thematic ETFs are fairly small. About half of the 129 funds on the market have under $100 million in assets. Most of them are also very new—75 of them are less than three years old, and only 16 of them have been in operation for 10 years or more.

Additionally, because thematic ETFs are niche, two funds which focus on the same theme could have very different investment strategies. Like with any investment, before putting money in a thematic ETF, it’s a good idea to do some research as there is a risk of loss.

Read more about the benefits of ETFs in an investment portfolio at SoFi Learn

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