Over recent years, investors have sought safety within mega-cap tech stocks while searching for alpha within disruptive technology trends like artificial intelligence. Most investors can agree the AI theme has long-term growth potential, and the current market sell-off is a short-term hiccup. But what happens when you put all your eggs in the same tech basket? Yes, there are ways to diversify across allocations like fixed income and alternatives. But there are also ways to diversify within your equity holdings.
Although the year has just started, some clear trends emerged in January. While the DeepSeek fiasco sent waves across the market, several high-performing ETFs remained resilient among the noise. These ETFs have some overlap with hot tech trends like AI, but ut overall provide a diversified way to capture alpha outside mainstream trends.
Some of 2024’s Trends Overlap With 2025's Top Performers
Two of the largest trends this year and last year — crypto/bitcoin and nuclear energy/uranium — share roots with technology. Earlier this year, crypto equity ETFs were outpacing pure-play bitcoin ETFs. But they’ve pulled back slightly after the sell-off. Many bitcoin equities are bitcoin miners. Commodity miners are typically levered to the price of the underlying commodity (i.e., when bitcoin prices do well, bitcoin miners and other bitcoin stocks may do better; when bitcoin prices fall, bitcoin miners and other bitcoin stocks may do worse).
Still, ETFs like the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT ) are trading in line with spot bitcoin products like the iShares Bitcoin Trust ETF (IBIT ). Yet fund flows show investors still prefer these pure-play products like IBIT. IBIT has seen $2.6 billion in net inflows YTD, while CRPT has seen only $8.7 million. It is apparent that part of that is a preference for a pure-play product, But it is also a function of investors fearing some of the volatility behind crypto equities. Many individual crypto equity stocks like Microstrategy (MSTR) and Coinbase (COIN) still receive a lot of attention. But the overall crypto equity industry has seen some additional volatility over the past few years.
Uranium has stolen the spotlight from some of the traditional commodities like gold and silver. Uranium powers nuclear energy, which is not only a clean energy source. But it will potentially will help support a significant amount of power demand from the growing AI industry. Pure-play nuclear energy ETFs like the Range Nuclear Renaissance Index ETF (NUKZ ) are up double digits YTD (10% as of 1/28/2025). Top holdings Oklo Inc OKLO and Constellation Energy Corp (CEG), are up 76% and 30%, respectively YTD).
Outside Traditional Tech, Opportunities Exist in Disruptive Healthcare & Natural Resources
Disruptive healthcare technology is not just a weight-loss-drug story. The ARK Genomic Revolution ETF (ARKG ) (+13% YTD as of 1/28/25) is an actively managed thematic ETF focused on companies expected to benefit from extending and enhancing the quality of human, animal, and agricultural life by incorporating technological and scientific developments and advancements in genomics (DNA) into their business. Genetic sequencing, for example, is part of medicine growing into “proactive” versus “reactive.”
The growth-oriented ARKG has approximately 44% of its weight in medium-cap stocks and 40% of its weight in small-cap stocks. Biotechnology and healthcare products are among the ETF’s top industry groups. Together they sum to more than 80% of the ETF’s weight. Notably, pharmaceuticals are less than 1% of the portfolio. One of the best-performing stocks in this ETF is Tempus AI (TEM) (+55% YTD). It has recently made headlines with the launch of its personal health AI app. This industry shares some overlap with artificial intelligence. But the main thesis behind supporting proactive medicine extends beyond AI.
On a similar note, the Advisorshares Psychedelics ETF (PSIL) (+13% YTD) is another actively managed ETF that invests in the psychedelic drug sector. This is a new, emerging sector in various stages of legality since most psychedelics are Scheduled 1 controlled substances.
Despite some similar themes, PSIL does not have crossover with ARKG. PSIL instead focuses on biotechnology, pharmaceutical, and life science companies that derive the majority of their net revenue or net assets from psychedelic drugs that assist in mental health treatment (including common conditions like anxiety and depression). This is a nascent industry. So the majority of this ETF’s weight is in microcap stocks (approximately 57%) and small-cap stocks (approximately 26%).
The Strive Natural Resources and Security ETF (FTWO ) (+9% YTD) is a passive ETF that tracks an index of large- and midcap companies engaged in national security and natural resource security. These include: fuel, aerospace and defense, agriculture, nuclear, and gold.
Each of the five sectors is equal weighted and has 10 constituents each weighted by market cap. A look at investment sectors shows that the ETF is mostly “old economy” industries. These are approximately one-third materials, one-third industrials, and one-third split among energy and utilities. Its top holding, Constellation Energy, is a nuclear energy play. But diverse exposures to other types of natural resources companies, like agricultural company Deere & Co (DE), and oil and gas company Exxon Mobil Corp (XOM), contribute to this ETF’s resilience during tech pullbacks while still capturing some of that growth opportunity.
Bottom Line
If you’re searching for alpha among thematic and other industry ETFs, don’t forget to look outside of popular tech sectors for growth opportunities that can provide some diversification during tech sell-offs.
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