Ian Weir – Senior Dealer
Global Investment Markets Team
1 Sep, 2023

Thematic ETFs have gained considerable attention and popularity in the investment landscape, offering distinct advantages for investors seeking exposure to specific themes or sectors. These ETFs provide several benefits that make them attractive as investment options.

Firstly, thematic ETFs offer targeted exposure, allowing investors to focus on specific industries or trends that they believe will outperform the broader market. This targeted approach can potentially yield higher returns compared to traditional diversified portfolios.

Secondly, thematic ETFs provide diversification within a specific theme. For example, if an investor is interested in the renewable energy sector, they can invest in a renewable energy-themed ETF that holds a basket of companies involved in solar, wind, or other green technologies. This diversification helps mitigate risks associated with investing in individual stocks. 

Over the last five years, two outperforming themes have been technological breakthroughs and clean energy.  Technological breakthroughs have revolutionized various industries, and ETFs focusing on this theme have delivered impressive returns. The proliferation of smartphones, artificial intelligence, cloud computing, and other technological advancements has propelled companies like Apple, Google, and Microsoft to new heights, leading to substantial gains for technology-themed ETF investors. Clean energy has also been a standout theme, with a growing global emphasis on sustainable energy solutions. Clean energy-themed ETFs have benefited from the rapid adoption of renewable technologies, such as solar and wind power, and the push towards reducing carbon emissions. Companies like Tesla have spearheaded this movement, leading to significant returns for investors in clean energy-themed ETFs.

Going forward, the following key high-level themes have been identified as broad topics of the future:

  1. Technological breakthroughs: Ongoing advancements in technology, such as artificial intelligence, robotics, and automation, will continue to disrupt industries and drive growth opportunities.
  2. Demographics and social change: Shifting demographics, including aging populations and changing consumer preferences, will shape investment opportunities in areas like healthcare, wellness, and lifestyle sectors.
  3. Rapid urbanization: The increasing concentration of populations in urban areas will drive demand for infrastructure development, smart cities, transportation solutions, and real estate investments.
  4. Climate change and resource scarcity: The urgent need to address climate change and resource scarcity will create investment opportunities in clean energy, sustainable agriculture, water management, and efficient resource utilization.
  5. Emerging global wealth: Rising middle classes in developing economies will drive demand for consumer goods, financial services, and emerging market investments, providing opportunities for thematic ETFs focused on these regions and sectors.

The increasing prevalence of these themes have varying impacts on our society, which in turn shapes the way we invest. To assist in understanding these impacts in more detail, Mason Stevens will be providing Thematic ETF summaries which include a selection of ETFs should you wish to add exposure to these themes in your clients’ portfolios. These summaries have been written with retail investors in mind so can also be discussed with and sent to clients. Please click the tiles below to access a selection of our Thematic ETF summaries.

The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.