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Thematic ETFs

General discussions about growth strategies which focus primarily on investing for capital growth
mark85
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Joined: January 13th, 2022, 8:04 pm

Thematic ETFs

#475643

Postby mark85 » January 23rd, 2022, 10:26 pm

Hi, Just wondering what peoples thoughts are on thematic ETFs? Surging in popularity over the past 2 years, higher risk/ higher volatility with some very impressive returns. Now all seemingly trending downwards (at speed) in light of current economic environment and also looking expensive relative to their underlying assets. Anyone purchasing small positions to their portfolio (if so which) or best to stay well away?

mc2fool
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Re: Thematic ETFs

#476837

Postby mc2fool » January 28th, 2022, 12:51 pm

I see nobody has yet replied and I wonder if, like I, folks are not quite sure what to say on the matter.

I think my first thoughts were to wonder (without having done any checking at all) if your assertions are actually the case, as the broad generalisation you've expressed them as. Are all thematic ETFs higher risk/higher volatility and now trending downwards at speed? Sure, you can think of specific ones where that's true, most famously the ARK ones I guess (although you can't buy them in the UK, 'cos of lack of a KID), but is it true as a broad generalisation? Dunno.

I guess also it depends on exactly what you mean by "thematic" ETFs. Some labelled so seem to be just passive sector ETFs, while others are active.

E.g. I hold the iShares Global Water ETF (IH2O). Is that a "thematic" ETF? I didn't think of it that way when I bought it, I just considered it a global sectoral ETF. Indeed, it's a passive S&P Global Water Index tracker. (Yes, it's gone down by more than, say, VWRL in the past few months, but on anything from a 1 year view and longer it's ahead.)

Not sure what to add to that ... I suspect that the lack of replies indicate that I'm not alone in thinking that the answer to your post is a big Dunno! :D

(Now watch lots of strong opinions come in.... ;) )

Lootman
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Re: Thematic ETFs

#476841

Postby Lootman » January 28th, 2022, 1:02 pm

mc2fool wrote: Are all thematic ETFs higher risk/higher volatility and now trending downwards at speed? Sure, you can think of specific ones where that's true, most famously the ARK ones I guess (although you can't buy them in the UK, 'cos of lack of a KID), but is it true as a broad generalisation? Dunno.

I think I can assert with some confidence that some thematic ETFs are less volatile then the overall market. For the simple reason that one theme is low volatility and there are low-volatlity ETFs such as SPLV and USMV.

Again, ETFs that invest in sectors like utilities or consumer staples will probably give you less volatility.

That said, to me anyway, a thematic ETF is some kind of semi-active fund which is selecting a subset of the market in an attempt to beat the market, and with that also comes the risk of doing worse than the market, perhaps much worse.

I find them useful for capturing exposure to a sector where I don't feel I know enough about it to choose individual shares, but where I want overall exposure to that sector. One example is biotech where I feel sure it will do well but knowing which companies will have the blockbuster new therapy is impossible for anyone who doesn't work in that field to figure out, and maybe not even for them.

mc2fool
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Re: Thematic ETFs

#476856

Postby mc2fool » January 28th, 2022, 1:34 pm

Lootman wrote:
mc2fool wrote: Are all thematic ETFs higher risk/higher volatility and now trending downwards at speed? Sure, you can think of specific ones where that's true, most famously the ARK ones I guess (although you can't buy them in the UK, 'cos of lack of a KID), but is it true as a broad generalisation? Dunno.

I think I can assert with some confidence that some thematic ETFs are less volatile then the overall market. For the simple reason that one theme is low volatility and there are low-volatlity ETFs such as SPLV and USMV.

Ahh, now I also hold, inter alia, the iShares Edge MSCI World Minimum Volatility ETF (MINV) but I'd always thought that was, depending on which source you read, a "factor" ETF or a "smart beta" ETF, not a "theme". :D

Hence my point about it depends on exactly what is meant by "thematic" ETFs.

FWIW iShares puts the World Minimum Volatility ETF (MINV) under Factors and the previously mentioned Global Water ETF (IH2O) under both Thematic and Sectors!


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