'Thematic investing' has skyrocketed. Here's how to capitalize on trends that could shape the future

  • Thematic investing generally means buying stocks or other investments that may benefit from a particular trend.
  • Assets in thematic ETFs have hit $133 billion, up from $27 billion before the pandemic.
  • Because they may be concentrated in one segment of the economy, these ETFs come with more risk.

Investors who want to capitalize on emerging trends — i.e., electric vehicles or remote work — may want to check out "thematic" exchange-traded funds.

These ETFs provide a way for investors to engage in so-called thematic investing, which generally means buying stocks or other investments that may benefit from a particular trend. And depending on how you define that theme, there may already be an ETF whose holdings reflect it.

"There are over 40 themes you can invest in through a variety of ETFs," said Jay Jacobs, head of research and strategy for Global X ETFs, who spoke at CNBC's Financial Advisor Summit on Tuesday.

Assets in these ETFs have hit $133 billion, up from $27 billion before the pandemic, Jacobs said. 

Thematic ETFs operate the way other ETFs do in that they invest in a basket of stocks — which may or may not be based on an index — and shares trade throughout the day. Some are actively managed, meaning there are professional stock pickers at the helm.

Holdings generally will reflect the overarching theme of the ETF. For example, ARK Innovation ETF invests in disruptive innovation, which could mean companies involved in, say, automation technology or genomics. This ETF is the largest in the thematic category, with $24.3 billion in assets, according to ETF.com.

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Some themes identified that could shape the future are big data, climate change, demographics, future mobility and understanding the post-Covid world, said Anna Ginzburg, a director and portfolio manager at Bank of America and speaker at the FA Summit session.

Other themes that may play out well in 2021 include structural changes in consumer and business habits brought about by the pandemic, as well as demand and desire for an infrastructure bill, among others identified by Chris Konstantinos, chief investment strategist for RiverFront Investment Group and a speaker at the session, as well.

While thematic ETFs offer a different approach to investing, they also come with more risk. Because their holdings may be concentrated in one industry or sector, they are likely to experience more volatility.

"There will always be a lot of risks," Ginzburg said. "Trends take time [and] you're bound to have short-term volatility."

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