Investing in Promising Themes with ETFs
Passive investment can pay off in the long term
Passive investment in ETFs can be a good investment. For most investors, it is even a better idea than trying stock picking.
In this article we will describe the advantages associated with passive investing and then identify 8 themes, as examples, to invest in and interesting associated ETFs.
The advantages of investing in ETFs
Investing in ETFs has a lot of advantages. Here are some of them:
You mitigate your risk
Most index investors outperformed fund managers and stock pickers
You can invest in promising themes without needing to know the companies in the sector in detail
Low fees
However if index ETFs are easy to understand as they replicate their reference index, thematic ETFs can be harder to choose as different ETFs on the same theme can have very different stock picks.
In this article, we propose a selection of thematic ETFs for different themes, including the expected market growth of each theme!
Of course, thematic ETFs are less diversified than more global ETFs, so this can create a concentration risk.
1. Cybersecurity
And we begin with cybersecurity. According to different studies, cybersecurity should grow at a 13% to 15% CAGR in the next years.
ETF #1 - First Trust Nasdaq Cybersecurity ETF - Ticker: CIBR
Top 10 positions are: Broadcom, Crowdstrike, Cisco, Palo Alto, Sentinel One, Okta, ZScaler, Cyberark, Science Application & Juniper
ETF #2 - iShares Cybersecurity and Tech ETF - Ticker: IHAK
Top 10 positions are: Sentinel One, Okta, Tenable, ZScaler, Fortinet, Cyberark, Crowdstrike, Varonis, Checkpoint & Qualys
2. Water
Water is interesting as climate change could impact its global distribution on earth. The market is expected to grow at a 4.5% CAGR from 2022 to 2030, but the main companies could benefit a lot from new uses and scarcity management.
ETF #1 - Amundi MSCI Water ESG Screened UCITS ETF - Ticker: WAT
Top 10 positions are: Geberit, Ferguson, Xylem, Waste Management, Republic Services, American Water Works, Graco, Pentair, United Utilities Group & Severn Trent
ETF #2 - First Trust ISE Water Index Fund ETF - Ticker: FIW
Top 10 positions are: Ferguson, Waters, Xylem, Agilent, Ecolab, Idexx, Roper, A.O. Smith, Idex & Core&Main
3. Cloud computing
The cloud computing sector is expected to grow by over 15% a year between now and 2030. At the heart of digital transformation, it is an exciting sector full of quality stocks
ETF #1 - Fidelity Cloud Computing UCITS ETF - Ticker: FCLD
Top 10 positions are: Salesforce, Microsoft, Intuit, Servicenow, Oracle, Atlassian, Workday, Equinix, Snowflake & Digital Realty Trust
ETF #2 - First Trust ISE Cloud Computing Index Fund ETF - Ticker: SKYY
Top 10 positions are: Pure Storage, Nutanix, Alphabet, IBM, Microsoft, Oracle, MongoDB, Cisco, Akamai & Cloudflare
4. Defense
As geopolitical tensions mount, the defense market is set to continue growing over the next years. The CAGR should be around 5% in the next years.
ETF #1 - Invesco Aerospace & Defense ETF - Ticker: PPA
Top 10 positions are: RTX, Lockheed Martin, Boeing, General Electric, Northrop Grumman, General Dynamics, Honeywell, L3Harris, Transdigm & Axon
ETF #2 - Vaneck Defense UCITS ETF - Ticker: DFNS
Top 10 positions are: BWX, Science Applications, Parsons, Palantir, Moog, Mercury Systems, Leidos, Kratos, KBR & Huntington Ingalls
5. India
Indian stock market is expected to double over the next 6 years. An ETF about India is a asimple way to benefit from the country’s growth
ETF #1 - iShares MSCI India ETF - Ticker: INDA
Top 10 positions are: Reliance, ICICI, Infosys, HDFC, Tata Consultancy, Axis Bank, Larsen & Toubro, Barthi Airtel, Hindustan Unilever & Kotak Mahindra Bank
6. Vietnam
Another fast developing country is Vietnam. They could also benefit from the trade ware between US and China. By 2030, Vietnam`s GDP is expected to reach around US$500 billion from over US$200 billion in 2018.
ETF #1 - Global X MSCI Vietnam ETF - Ticker: VNAM
Top 10 positions are: Vinhomes, Thanh Thanh Cong, Saigon - Hanoi Commercial Bank, Saigon - Hanoi Securities, Commercial Bank for Investment and Development of Vietnam, No Va Land Investment Group, Nam Long Investment Corporation, Kosy, Khang Diem House Trading and Investment & Kido Group
7. AI
Impossible not to speak about AI in this article. Growth is hard to forecast but the CAGR should be between 20% and 40% by 2030 depending on the studies.
ETF #1 - Wisdomtree Artificial Intelligence UCITS ETF - Ticker: WTAI
Top 10 positions are: Sentinel One, UI Path, Mediatek, AMD, Pksha, Upstart, Qualcomm, Micron, Broadcom & SK Hynix
ETF #2 - XTrackers AI & Big Data UCITS ETF - Ticker: XAIX
Top 10 positions are: Meta, Salesforce, Amazon, Alphabet, Nvidia, AMD, Samsung Electronics, Microsoft, Bank of America & Adobe
ETF #3 - L&G Artificial Intelligence UCITS ETF - Ticker: AIAI
Top 10 positions are: AMD, NVidia, Analog Devices, Microsoft, Cloudflare, Cognex, Ambarella, Autodesk, Illumina & Palo Alto
8. Biotechnology
The Global Biotechnology Market Size was USD 368 Billion in 2021. It is anticipated to reach USD 1,334 Billion by 2030. However directly investing in biotech stocks can be risky. Even if the whole sector is risky, an ETF can be a good idea to mitigate that risk and benefit from the potential growth
ETF #1 - iShares Biotechnology ETF - Ticker: IBB (mostly big caps)
Top 10 positions are: Vertex Pharmaceuticals, Amgen, Regeneron, Gilead, IQVIA, Biogen, Moderna, Mettler-Toledo, Alnylam & Illumina
ETF #2 - SPDR S&P Biotech ETF - Ticker: XBI (riskier with smaller caps)
Top 10 positions are: Cytokinetics, Karuna, Acadia, Biohaven, Amicus, Blueprint Medicines, Arrowhead, Bridgebio & Moderna
Conclusion
Obviously other interesting themes can exist. ETFs can be used as a core investment or a diversification way. For thematic ETF investing the process is simple: identify the market potential and find ETF related to this one. But don’t forget to check the companies in this ETF and the reference index. Some are better than others!
Now it is your turn to play!