What investors should know about investing in thematic ETFs


Investors should not underestimate the amount of funds traded on a thematic exchange, says Jay Jacobs of Global X.

With more than a third of the market-themed ETFs launched in just the past year and a half, the space is rapidly expanding from its technology-focused roots, the company’s senior vice president and head of research and strategy told CNBC’s ETF Edge this week.

“I think the mistake some investors make is to think of a thematic investment as just looking at technology,” Jacobs said in a second interview.

Global X’s two fastest-growing ETFs this year, U.S. Infrastructure Development (PAVE) and Lithium & Battery Tech (LIT), do not have much technological exposure at all, Jacobs added.

“Looking outside of technology in the thematic space, in my opinion, was the key for investors to find that diversity,” he said.

A lot of leading-issue ETFs are going down from year to date, so investors also need to come to terms with the potential risks before buying, said ETF Action co-founder Alex Shepherd in the same interview.

“The fact that there can be increased volatility and there can be increased risk, is what you chase after looking for above-average returns outside of these passive and broad indices,” he said.

However, new investment styles can help reduce this risk like never before, Shepherd said.

“Just because most products on the market are considered passive, it does not mean that they have not been actively used around a core position,” he said.

Only about $ 300 billion in assets follow active strategies, Shepherd said.

“Ten, 20 years ago, both investors and advisors did not have the ability to be creative,” he said. “Now you look at nearly 2,800 ETFs traded in the US. “They now have the tools to tilt one portfolio or another based on their risks, their goals, and it has not been there historically.”




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