Thematic ETFs might have fallen somewhat out of favor in the era of nonstop megacap growth, but as that era comes to a close, investors should explore their options. As thematics become more relevant, identifying the themes that will shape the future is critical. In the recent Midyear Outlook Symposium, Amplify’s CEO Christian Magoon and Xtrackers’ Head of DWS Research Institute Robert Bush shared their thoughts on the comeback of thematic ETFs. TMX VettaFi’s Kirsten Chang moderated the discussion.
Do Call It a Comeback
“Thematic is back,” Magoon said, noting that eight of Amplify’s thematic ETFs have outperformed the S&P 500. “It is time for advisors to take a look at it and add alpha to their broad-based investment portfolios.”
Thematic ETFs benefit from the ability to reinvent themselves. In 2021, cannabis ETFs had a brief moment, but other themes have since emerged, including AI.
How Much of Your Portfolio Should Go to Thematic ETFs?
Magoon thinks 5%-10% of portfolio allocations is a sweet spot for thematic ETFs and that different themes can play different roles in a portfolio. “There are some themes that are more of a trading opportunity than a long-term hold.” Time horizon is an important consideration for investors. Some trends could be short term and some could matter a great deal in the future.
Bush noted that there are thematic ideas that can span multiple sectors and some that can be incredibly niche. “You have to think about the economy of tomorrow,” he said.
Tales From the Crypto
Crypto is moving quickly and garnering attention from more institutional investors. “Year to date, a spot bitcoin ETF is the 4th-highest inflow ETF right now,” Magoon said. He noted the Amplify Transformational Data Sharing ETF (BLOK ) has been helpful for investors looking for exposure. Crypto volatility remains an issue, but has come down as more institutional investors have entered the space. It remains uncorrelated, and a potentially useful diversifier. BLOK has averaged more than 16% per year returns, according to Magoon.
The World Is a (Video Game) Stage & We Are Merely Players
The Amplify Video Game Leaders ETF (GAMR ) tracks the VettaFi Video Game Leader Index. GAMR is a terrific example of an attempt to cover a growing theme. “Three billion people game. The most popular sport is soccer, and only 200 [million] or 300 million people engage with soccer,” said Magoon.
GAMR has diverse exposure throughout the entire gaming ecosystem, including everything from mobile developers to the companies that make computer chips.
Given the importance of gaming globally and culturally, the video game ecosystem could provide investors with opportunities.
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