What’s Going On With Thematic ETFs?

Be careful about chasing fads, and your tail [View in browser]( [The Juice Logo] Proprietary Data Insights Top Financial Professional ETF Searches This Month Rank Name Searches #1 SPDR S&P 500 ETF 2,522 #2 ProShares UltraPro QQQ 504 #3 Invesco QQQ 427 #4 ProShares UltraPro Short QQQ 363 #5 Direxion Daily Semiconductor Bull 3x Shares 134 #ad [Tickers Trending Among FinPros & Retail Investors]( Brought to you by [Coin and Card]( [New AI Tech Unlocks Massive Profit Potential]( [ Coin and Card - New AI Tech Unlocks Massive Profit Potential]( One company is about to radically transform the collectible market into an expansive digital marketplace. [Invest Now]( What’s Going On With Thematic ETFs? As much as Trackstar, our proprietary sentiment indicator [turns us on to investment ideas](, it also leads us to bits of healthy, cautionary wisdom. Today’s example. Check it out. Three of the top five most searched ETFs among financial professionals are leveraged ETFs. We’ll save a detailed description of what leveraged ETFs are for another day (we really plan to devote several installments to this), but, for now, just know that leveraged ETFs are meant as short-term trading vehicles for experienced investors, not as long-term holdings. In fact, they’re not suitable for a vast majority of everyday investors. As such, we’re happy to report that leveraged ETFs don’t show up in the top five list when we use Trackstar to see what everyday investors are searching for. Along similar lines of not getting too fancy. Of sticking to the basics. Wisdom Tree regularly puts out interesting data on thematic ETFs. For a refresher on thematic ETFs, [go here](. In the shell of a nut, thematic ETFs are: Thematic ETFs can be active, passive or a mix of both. Passive means they look to replicate the results of a stock market index. A mix of both means fund managers have the leeway to make moves that don’t necessarily mirror what’s happening in the index. ETFs That Tell A Story In the Oliver Wyman report, the consultancy credits demand for thematic ETFs to “asset allocators increasingly look(ing) for funds that tell a story and connect with contemporary themes.” This is a nice way to define thematic ETFs outside of the textbook definition that they – duh – invest around a specific theme. However, that said we’re only big fans of two types of storytelling in investing: - The story that, over the long haul, investing in the broad stock market is the best, most stress-free way to build long-term wealth via investing. - The story on individual stocks, from perennial blue chip powerhouses to rising stars such as Uber (UBER) and DoorDash (DASH). We’re not big fans of here one day, gone the next stories or roundabout ways to play everything from passing fads to major innovations, such as AI, that will likely be with us for a long time, if not forever. We prefer more direct, straightforward approaches. So, on one hand, we’re heartened by the data from Wisdom Tree showing that our sister newsletter, The Spill’s, [top ETF pick to play artificial intelligence](, the VanEck Semiconductor ETF (SMH), experienced the largest inflow of cash, as of July 2023, at $889 million. This shows that large numbers of investors are going at AI via the semiconductor industry and the top names in the space that were powerhouses long before AI became a household term. At the same time, we’re concerned that the ARK Innovation ETF (ARKK) came in fifth with $225 million in inflows. We detail our concern with ARKK [here](. But, ultimately, flashy headline-grabbing fund managers aren’t necessarily the people we want to place our trust and hard-earned cash with as long-term investors. We were also worried that some seemingly random names show up on the list. For example, the KraneShares CSI China Internet ETF (KWEB) is right behind SMH with inflows, as of July 2023, of $646 million. We don’t think this is a case of somebody knowing something we don’t. Over the last six months, KWEB is down nearly 11%. Over the last year and five years, respectively, it’s down 3% and 47%. Of course, SMH and your best plays on the broad stock market - the SPDR S&P 500 ETF (SPY) and Invesco QQQ (QQQ) - trounce those negative returns. To reinforce our point. If you look at the worst-performing thematic ETF sectors in July, you’ll see “the internet of things” up just 1.7%. Remember when that was a thing? When every other commercial on television touted IoT. As for the top five thematic sectors: - Blockchain, +18.5% - Education, +15.6% - Sustainable Mobility, +11.8% - Fintech, +11.2% - Social Media & Media, +10.6% The key here: - Are you chasing these sectors? - Or are you analyzing them with a clear head and proceeding to buy the leaders in the spaces that interest you? The leaders who often end up being the names that have been delivering consistent returns for quite some time. Sort of like with the AI fringe plays versus semiconductor example. We plan to dedicate future Juices to how to play thematic sectors, as a long-term investor, without getting burnt. In fact, we might do an entire series on it, because there’s a lot there. So, tell a friend, and count on it. [Are Alternative Investments a gray area? The Alt can add some color.]( The most profitable investors stay informed and up to date. Stay on top of Alternative Investment trends with credible articles and videos directly to your inbox with our hand-curated newsletter The Alt. [Subscribe now.]( The Bottom Line: While we love all the tools and new types of investments we now have at our fingertips, we also don’t want to use them to the detriment of preserving capital and sustaining solid returns over time. After all, this is often our retirement or college fund money we’re talking about. So, before you get too fancy, stay tried and true. Start with the broad market, dividend-paying stalwarts and longstanding industries that aren’t going anywhere. We detail one way to do exactly that using ETFs in [one of the most popular installments of The Juice ever](. From there, you can branch out, but always avoid getting too fancy just for the sake of getting too fancy. 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