Invest with a theme in mind.
Sector investing has long been dominated by the major ETF providers. State Street’s Select Sector SPDRs are top of mind, but Vanguard, Fidelity and iShares all have enormous share in the space. And all of them offer such low-cost options that smaller shops simply can’t effectively compete. However, in response, firms such as Global X, PureFunds and others have given birth to thematic ETFs — funds that play more niche industries, or span several industries and sectors in the name of chasing a larger economic mega-trend, such as robotics or online payments.
Global X Millennials Thematic ETF (ticker: MILN)
We’ll start with a fund that targets one of America’s largest investing trends — chasing the ever-elusive, difficult-to-gauge millennial generation. Global X’s MILN owns companies “that have a high likelihood of benefiting from the rising spending power and unique preferences” of Americans born between 1980 and 2000. The fund is filled with online retailers (17.4 percent) such as Amazon.com (AMZN) and internet tech companies such as Apple (AAPL). But there’s also a focus on residential real estate investment trusts such as apartment community developer AvalonBay Communities (AVB), retailers such as Home Depot (HD) and even a few apparel companies including Nike (NKE).
Expenses: 0.5 percent, or $50 annually per $10,000 invested (includes 18-basis-point fee waiver)
Amplify Online Retail (IBUY)
E-commerce operators are certainly popular among millennials, but Generation X and even baby boomers are adopting online retail, and clearly the plugged-in post-millennial generation, Generation Z, will continue to buy on the web. Amplify’s IBUY is a basket of 40 companies that derive 70 percent or more of their sales online. IBUY uses a modified equal weight index, so while it holds stocks like Amazon and eBay (EBAY), PetMed Express (PETS) is currently top dog. There’s also an international focus on companies such as China’s Alibaba Holding Group (BABA) and Latin America’s MercadoLibre (MELI), and even online payments has representation via PayPal Holdings (PYPL).
Expenses: 0.65 percent
PureFunds Big Data & Analytics ETF (BIGD)
An area of the tech world that’s helping e-commerce operators be even more effective is big data and analytics. Big data refers to especially large troves of data gathered by businesses and other organizations, and analytics is what makes sense of it and allows other businesses to put it all to use. Think Facebook (FB) or Alphabet’s (GOOGL, GOOG) Google search and their increasingly targeted ads. BIGD’s equal-weighted portfolio of 41 holdings includes companies such as Germany’s Software AG, which is responsible for the Apama big data streaming analytics platform, and Medidata Solutions (MDSO), which provides analytic solutions for clinical trials.
Expenses: 0.75 percent
First Trust Nasdaq Cybersecurity ETF (CIBR)
One of the biggest technological issues of our time is the cyberattack — hacking, ransomware, phishing, you name it. While tech sector ETFs may hold a few cybersecurity companies, only a handful of ETFs specifically target this industry. First Trust’s CIBR invests in pure cybersecurity plays and larger conglomerates across several exchanges. The ETF’s holdings include security-specific stocks such as Check Point Software Technologies (CHKP) and FireEye (FEYE), but also tech firms like Cisco Systems (CSCO) and even defense companies such as BAE Systems that feature cyberdefense segments.
Expenses: 0.6 percent
PureFunds Drone Economy (IFLY)
A less established, more speculative trend in the tech space is unmanned flight, or drone technology. Amazon has popularized the idea of massive commercial use for drones, but as it stands, that’s still more idea than substance. For now, the drone industry consists of mostly defense- or consumer-minded products. PureFunds’ IFLY invests in a handful of stocks, with double-digit holdings in France’s Parrot SA, which produces drones for entertainment and agriculture, and America’s AeroVironment (AVAV), whose products are geared more toward military implementations. The rest of the fund includes less concentrated plays such as Boeing Co. (BA), video chipmaker Ambarella (AMBA) and action camera-maker GoPro (GPRO).
Expenses: 0.75 percent
The Organics ETF (ORG)
Don’t get the impression that all thematic ETFs are necessarily tech-minded. The Organics ETF by Janus Henderson Investors is a play on the exploding preference for naturally derived food and even personal care items, holding both retailers and producers. American organics grocer Whole Foods Market (WFM) is an obvious heavyweight at nearly 19 percent of the fund, but it’s not the largest — that goes do Denmark’s Chr Hansen Holding A/S, which produces natural probiotics, enzymes and other things used in the production of organic foods. Other notable holdings are ingredients and packaged food provider SunOpta (STKL), and French beauty care firm L’Occitane International.
Expenses: 0.5 percent
Market Vectors Agribusiness ETF (MOO)
If you’re a fan of ORG, you’ll want to close your eyes and move on past the MOO, which includes a host of chemicals and other Big Agriculture plays. The theme here is simple but powerful: An increasing global population requires more food, and MOO’s holdings, in theory, help maximize the earth’s food-production capabilities. Thus, you have the likes of seeds giant Monsanto Co. (MON), tractor giant Deere & Co. (DE) and even animal health specialist Zoetis (ZTS). MOO also is a reminder that thematic ETFs aren’t a new concept — the ETF commenced trading back in 2007.
Expenses: 0.53 percent
U.S. Infrastructure Development ETF (PAVE)
Fund providers can turn around a thematic ETF in a hurry should the need arise. When Donald Trump earned his surprise presidential win in November 2016, investors jumped into everything relating to his campaign promises, including U.S. infrastructure. Global X filed a prospectus with the SEC in December for an infrastructure ETF, and got it listed by early March 2017. PAVE is a mostly two-front play on a U.S infrastructure buildout: industrials (67 percent) such as instrumentation and industrial tech firm Fortive Corp. (FTV) and automation company Rockwell Automation (ROK); and materials (27 percent) such as steelmaker Nucor Corp. (NUE).
Expenses: 0.47 percent (includes 11-basis-point fee waiver)
The Long-Term Care ETF (OLD)
One of the most well-traveled investing megatrends is the aging of America’s baby boomers, as well as growing elderly populations across the rest of the world. Janus Henderson’s OLD ETF targets the sector most likely to benefit — real estate, especially senior care and other medical property operators. Top holdings are a who’s who of senior housing, including Ventas (VTR), Welltower (HCN) and HCP (HCP), but also international players such as Europe’s Orpea and New Zealand’s Ryman Healthcare. In fact, OLD has a substantial international allocation at about 25 percent of the fund’s weight. Janus’ fund also has small holdings in biotech and medical products companies.
Expenses: 0.5 percent
Genomic Revolution Multi-Sector ETF (ARKG)
Last is a similarly minded company as OLD, but with a much different focus. ARKG also invests in companies seeking to extend and improve human life, but it does so through holdings that benefit from genomics. That includes involvement in molecular diagnostics, stem cells, instrumentation and gene therapy, among other things. Top holdings include innovators such as genomic analysis diagnostics developer Foundation Medicine (FMI), whose products help cancer testing; genome sequencing specialist Illumina (ILMN); and Invitae (NVTA), which offers affordable genetic testing solutions.
Expenses: 0.75 percent
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The New Sector Funds: 10 Thematic ETFs originally appeared on usnews.com
