Millennial investors: Maybe time isn't on your side

The median age at which millennials first purchase mutual funds is 23, compared to 26 for Gen Xers and 30s for boomers.

Millennials: Maybe time isn't on your side when it comes to investing. Maybe, in fact, it's ticking with much more risk than will be good for your future financial well-being.

Last month New York-based exchange-traded fund provider Global X Funds filed with the Securities and Exchange Commission to launch the Global X Millennial Generation ETF, with the goal of investing in technologies and trends popular among millennials.

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It's not the only fund company creating a lineup of thematic investments to capture millennial market share and play off the idea that millennials are not only investing earlier than previous generations but have such a long investing time horizon that they can make bets on riskier market themes that match progressive ideals their generation holds dear.

With baby boomers marching toward retirement, fund managers are increasingly tilting their product offerings to appeal to millennials, the coveted demographic of consumers roughly 18 to 33 who currently represents the largest growth opportunity.

Spurred on by their entrée into the workforce, where employers are introducing them to 401(k) plans and other defined contribution options for the first time, millennials are investing at younger ages than their generational forebearers.

A study by the mutual fund industry lobby, the Investment Company Institute (ICI), found that the median age at which adult millennials first purchase mutual funds is 23, compared to age 26 for Gen Xers, while baby boomers averaged well into their thirties before taking the mutual fund plunge.

"Millennials are taking advantage of the innovations that make the process of investing more flexible and easier, with choices that give them the diversification they need," explained ICI research director Sarah Holden, who pointed out that millennials currently comprise nearly 20 percent of all Roth IRA investors. Holden added, "It makes sense to be sure your lineup of investment offerings has something that appeals to this group."

ARK Investment Management launched four theme-based equity ETFs in late 2014 that it now markets to millennial investors and that capture trends, including genomics, robotics and social media.

Global X, meanwhile, already offers a Social Media ETF (SOCL), tapping into a popular millennial theme, but not specifically branded like its new ETF as a millennial investment.

The company is making a much broader push into demographic and thematic ETFs, according to recently filed documents with the Securities and Exchange Commission. In addition to the millennial-themed ETF, Global X has plans for an aging population ETF, urbanization ETF and funds covering education technology, nanotechnology, 3-D printing and, more broadly, disruptive technology, among others.

Global X declined to comment on the millennial theme, citing SEC registration period rules — firms cannot talk about funds that have not yet been approved by regulators.

"We've focused on disruptive innovation that's going to play out over a number of years, because millennials have a long time horizon to let these themes play out," said ARK CEO Catherine Wood.

The developments might make an older investor, perplexed (if not bothered) by millennial optimism, ask, What's wrong with the way people have been investing for decades, putting money into core equity and bond asset classes as a means of diversifying their wealth, to protect principal and grow assets?

"Millennials don't see the world the same way the baby boomers do, with traditional sector lines and geographic boundaries and style boxes for value and growth," said Ark's head of product development, Tom Staudt.

Take that, Warren Buffett and Jack Bogle and the rest of you "cranky," traditional portfolio-loving boomers.

ARK's ETFs include the Genomic Revolution Multi-Sector ETF (ARKG), which invests in innovative genomic sequencing, analysis, synthesis or instrumentation companies that focus on next-generation oncology. It also includes among its core holdings what one might argue is a very "un-millennial" stock: Monsanto, maker of the genetically modified seeds most closely associated with the GMO debate.

It also offers the Web x.0 ETF (ARKW), tapping the buzzy themes of big data and social media; the ARK Industrial Innovation ETF (ARKQ), which focuses on robotics, space exploration, 3-D printing and autonomous vehicles.

"Genomic revolution is in its infancy. There's an opportunity for real science to change the face of health care, and battery technology is advancing, thanks to people like Elon Musk," Wood said. Tesla is a core holding in the Industrial Innovation ETF.

Marketing to millennials means finding them where they play, including social media staples Facebook, trading at an all-time high after its recent blockbuster earnings, LinkedIn — which declined by more than 25 percent on Thursday after its most recent earnings — and Twitter, which is trading near an all-time low.

"It's harder for a baby boomer to imagine a world with drone delivery, or a world where cancer, if not totally eliminated, has been turned in to a chronic disease that's treatable with personalized medicine," Staudt said. "But millennials know these changes are going to take place in their lifetime, and whether it takes three years or seven years, they have the ability to catch the entire upswing and capitalize on the growth."

In terms of investor reception and performance, the jury is still out.

Not all financial planners are buying the pitch or optimistic about millennial-themed ETFs, in particular.

Sophia Bera, CFP and founder of Gen Y Planning, is one of the critics. Although Bera ritually recommends low-cost agnostic ETFs to her stable of 20- to 30-year-old clients, she dismissed millennial ETFs as marketing gimmickry.

"On the surface, it sounds like these millennial ETFs are just putting a bunch of crazy hot-ticket items into a more risky portfolio, with all new technologies that haven't had a very long shelf life," said Bera, who worries that many of these underlying companies will fail over time.

"Investing isn't supposed to be flashy; it should be boring," Bera said. "And there are less gimmicky ways to create portfolios than by pulling at the heartstrings of millennials and telling them they'll be investing in healthy lifestyles, travel, leisure and all the things they love. Millennials are conditioned to think: 'I'm supposed to invest, and there's a fund with the word 'millennial' in the title, so it must be for me."

Thematic investing, though, is not in and of itself any sort of "gimmick." In fact, it has a long history. ARK's CEO Wood spent more than a decade managing portfolios at AllianceBernstein focused on thematic investing within equities and targeting disruptive themes. The AB MA Strategic Research Portfolio — of which Wood was a co-manager and which today still has its highest concentration in the technology sector — generated an annualized return of 5.61 percent from the end of June 2001 to the end of June 2013 (Wood's tenure), a period of time when the S&P 500 returned 4.23 percent, according to Morningstar data.

Wood herself told Forbes when she launched the ETF company that her style isn't for the faint of heart and shouldn't make up the core of a typical investor's portfolio. She does put her money where her mouth is, too, with a personal ownership stake in the genomics ETF of $500,000 to $1 million, and over $1 million of her own money in the other two ETFs referenced in this article.

"Investing isn't supposed to be flashy; it should be boring. ... There are less gimmicky ways to create portfolios than by pulling at the heartstrings of millennials." -Sophia Bera, CFP and founder of Gen Y Planning

Andrew Holland, a portfolio manager at McLean, Virginia-based Quantitative Investment Advisors who works with younger investors, said theme-based ETFs are an interesting solution to help investors gain exposure to products or ideas in which they are accustomed or interested in. But many go too far, providing exposure to next-generation products and services that are speculative, such as bitcoin and emerging medicine.

"These ETFs are not suitable for risk-adverse investors, as they may see extreme price variation as the underlying themes evolve," he said.

While a long time horizon should allow younger investors to ride out the price variation, Holland said these funds still do not provide investors with diversified exposure to capital markets and may do much more damage than good to an investor's portfolio over the long term.

It's reasonable to make the argument that an investor should have the right to take riskier bets in which they believe strongly — with at least a small percentage of their overall portfolio. These bets may simply capture the growth opportunities they believe are the market's long-term best.

The tech landscape is littered with failures, but Apple and Google are now the two most valuable companies in the stock market — larger than the last generation's giants, from ExxonMobil to GE, Johnson & Johnson and Berkshire Hathaway. That said, it doesn't take a thematic fund for investors to access Apple and Google, which are held in just about every broad U.S. stock index fund today.

Holland is still unconvinced these ETFs serve any well-founded investing purpose: "It's a better bet to increase your exposure to riskier assets, such as emerging markets, which have a track record for growth, rather than speculate on new-generation ideas yet to see fruition."

"As a general rule of thumb, if the name sounds speculative, it probably is," he said.

So thumb your nose at that, millennials — at your own risk.

By Andrew Bloomenthal, special to CNBC.com