Themed ETFs Are Hot. Here Are Five of the Hottest to Invest In – The Wall Street Journal

Investors have continued to plow money into ETFs with themes this year, favoring concepts and trends ranging from clean technology to legal cannabis.

Thematic exchange-traded funds saw fund inflows of about $38.8 billion in the first half, compared with $7.8 billion in the first half of 2020, according to Morningstar Inc. There are now 191 such funds with a combined $164.2 billion in assets, up from 55 funds and $11.2 billion in assets five years ago.

Investors are shifting “from buying individual ‘story’ stocks to thematic ETFs to get diversification in some of the hottest growth markets in the world,” says Todd Rosenbluth, CFRA’s senior director of ETF and head of mutual-fund research.

To be sure, themed funds are riskier than ETFs that follow the broader market and can tank when enough investors start to think a trend has run its course. Cloud computing, for example, while still seen as a strong trend for the long term, has lost momentum recently as the pandemic has started to wane and fewer people are working remotely. Through June 30, ETFs based on cloud computing have seen net outflows of $600 million this year, Morningstar reports.

The Wall Street Journal asked a number of ETF experts to identify themes they believe are likely to produce strong returns for years to come. Here are five: