ETF Edge

Thematic ETFs are red-hot. Analysts assess the market's newest darlings

VIDEO5:0305:03
Thematic ETFs are red-hot. Analysts unpack the market's new darlings

Thematic ETFs are trending.

From the numerous attempts to list a bitcoin ETF to the rise and plateau of cannabis-based funds, thematic ETFs have been growing in popularity for years. Lately, the focus has shifted to new-age technologies such as cloud computing, artificial intelligence, fintech and social media as well as social causes including environmental protection and civil rights.

According to Global X, which presides over a suite of thematic ETFs including the Global X Cloud Computing ETF (CLOU) and the Global X Robotics and Artificial Intelligence ETF (BOTZ), assets under management in thematic ETFs are up 65% quarter over quarter.

"We really think thematic ETFs are here to stay," Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA Research, told CNBC's "ETF Edge" on Monday.

He highlighted the WisdomTree Cloud Computing Fund (WCLD), the First Trust NASDAQ Cybersecurity ETF (CIBR), Ark Invest's Genomic Revolution ETF (ARKG) and iShares Global Clean Energy ETF (ICLN) as just a few names that have recently seen interest from investors.

"They're not only a replacement for some of the sector ETFs you talked about, but if you're an old stock jockey, as I used to be as a financial advisor, these ETFs offer the benefits of diversification in a relatively low cost structure and one trade to be able to get 30, 40, 50 names to get your exposure," Rosenbluth said. "It's a really good concept."

Part of the appeal is also the ability to adjust your exposure according to your own views, Chris Hempstead, director of institutional business development at IndexIQ, said in the same "ETF Edge" interview.

"It's not always about artificial intelligence. It's not always about electronic vehicles and things like that. Sometimes thematic can also include a way to express an overweight or an underweight, in some cases, to a particular sector," Hempstead said.

"We talk about broad-based, passive indices like health care or energy," he said. "But if you want to overweight oncology, for example, you can find a thematic ETF that overweights those names."

Low-volatility or currency-hedged products can also be considered thematic, Hempstead said, pointing to his firm's own IQ S&P High Yield Low Volatility Bond ETF (HYLV).

"That's also a thematic way of expressing your view in a broader index-based world," Hempstead said.

If anything, the recent success of Direxion's Work From Home ETF (WFH) proves that thematic ETFs are here for the long haul, Rosenbluth said.

Since its launch on June 25, WFH is up nearly 2% and has accrued nearly $62 million in assets under management.

"This is just three weeks old. It used to be [that] investors would wait three years before buying an ETF, and then they started going into it earlier once they got a look at the underlying holdings. Three weeks is really impressive," Rosenbluth said. "It's a sign that this ETF has certainly resonated with investors."

Disclaimer