Thematic exchange traded funds are increasingly prominent parts of the broader ETF landscape, and investors have their pick of multi-theme funds and those addressing specific industries and sectors.
Isolating specific disruptive themes can be rewarding, but it can be tricky and create more risk than many investors are looking for. To that end, many market participants looking for thematic exposure opt for broader approaches, such as the Goldman Sachs Innovate Equity ETF (GINN).
“Thematic investing has been increasing in popularity. Mutual funds and ETFs focused on style, region, sector, or industry exposures still hold the majority of assets, whether those approaches are broad or more specific. However, interest in thematic investments has been growing with many new thematic strategies becoming available in recent years,” according to Fidelity research.
According to Goldman Sachs, GINN, which tracks the Solactive Innovative Global Equity Index, features exposure to the following trends: Data-Driven World, Finance Reimagined, Human Evolution, a Manufacturing Revolution, and the New Age Consumer.
With that broad-based approach, GINN seizes upon several factors that make thematic investing not only interesting but also potentially rewarding. Those include disruption, environmental sustainability, megatrends, and unique insights, among others.
“By investing in these expected shifts, investors in disruption may benefit from opportunities that arise when the market tends to underestimate the pace of change. Indeed, the market may especially underestimate how quickly technology can cause rapid shifts in ‘business as usual,’” adds Fidelity.
By not focusing on a specific theme, GINN limits concentration risk and can be an ideal outlet for patient investors because, as history confirms, megatrends often take time to develop in earnest.
“Some significant changes happen gradually, over the course of decades. Many observers can see these changes coming but might not realize how the world will be transformed in response. Megatrend funds focus on understanding long-term growth in profits, as aided by forces such as demographics and/or resource scarcity,” notes Fidelity.
Bottom line: The GINN approach could serve investors well in the thematic space – one ripe with opportunity but also prone to volatility. Investors looking to cover many bases, as they should in this style of investing, may want to give GINN a look.
“To help investors achieve that end, thematic investing may offer more targeted ways to add specific exposures to a theme than other types of funds. Indeed, some investors who buy individual stocks are, at least in part, thematic investors,” concludes Fidelity.
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