What are single-theme ETFs? And are they sustainable?

Exchange-traded funds are sustainable funds whose trade is based on exchanges. That means when you invest in a single ETF; you get an asset bundle you can trade in during market hours. This minimizes risk and exposure while diversifying your portfolio.

Single theme exchange-traded funds provide investment opportunities based on specific industries, like blockchain, artificial intelligence, or climate change. They are an easy way to invest in the hottest trends in sustainable funds instead of trying to pick the winning sector. They allow you to ride the wave carrying the entire sector. Generally, a thematic sustainable fund comprises companies that can greatly benefit from the trends.

Thematic ETFs are great for beginners and experts in the stock market. They are inexpensive and less risky than individual stocks and are accessible through brokerage firms and Robo-advisers.

How Single Theme ETFs Work

ETFs began as a cheap way for investors to get little exposure to specific industries, sustainable funds, or investing styles. As a result, investors who lack time to do individual company analytics can greatly benefit from thematic ETFs.

For instance, if there’s potential in artificial intelligence, you can buy the ETF to diversify your portfolio with less hassle and lower expenses. Single theme ETFs work by buying the stock in the index and then weighting it in the portfolio. As a result, when you buy one ETF share, you buy a stake in all the fund companies.

This will offer quick exposure to the prevailing theme and a little diversification across the companies. In addition, you pay the manager an expense ratio. This amount is a percentage of your entire investment in the fund and is considered management fees.

Although this amount is quoted annually, its deduction is made daily from your fund’s value, although it is undetectable. Often, the expense ratio is between 0.5% and 0.75% of your investment.

Are Single Theme ETFs Sustainable?

Thematic ETFs are sustainable because they can help you build a portfolio with potential growth in the long run. In addition, their thematic nature improves portfolio returns because they have a lower correlation to sector or regional benchmarks. However, if the sector is hurt or investors decide to opt-out, the risk is not reduced regardless of narrow diversification.

Common Thematic ETFs

1. First trust cloud computing ETF

This thematic ETF invests in companies focusing on cloud computing, providing in-demand services through the internet. In the last five years, the ETF has enjoyed a 12.7% annual return, with the cap size of individual stocks reaching 4.5% of total assets. The net assets are currently at $3.5 billion, with an expense ratio of 0.6%.

2. ARK Innovation ETF

This ETF invests in disruptive innovation, such as services and products with the potential to shift the world dramatically, for example, energy, automation technologies, and more. The stock in this fund returned to its investors about 8.3% annually. The fund’s net assets are $8.1 billion, with an expense ratio of 0.75%.

3. Global X robotics and artificial intelligence ETF

This sustainable fund invests in companies that can greatly benefit from artificial intelligence. Such companies include autonomous driving and industrial robots. The fund has returned at least 1.8% annually to its investors in the past five years. The fund’s net assets are $1.4 billion, with an expense ratio of 0.68%.

4. First trust cybersecurity ETF

This ETF invests in cybersecurity companies and tracks the Nasdaq cybersecurity index. It owns such companies in the industrial and technology sectors, like those protecting mobile devices, networks, and computers. Notably, the fund has returned at least 17% to its investors annually. The fund’s net asset is $5.5 billion, with a 0.6% expense ratio.

Advantages of Single Theme ETFs

• Thematic ETFs offer investors the flexibility to invest in specific targeted markets and easily sell whenever they feel the trend has died down.
• It is an easy way to diversify your portfolio as it offers stakes in all companies in an industry or companies across industries depending on the ETF.
• It is easy to venture into since it doesn’t require research and is a great opportunity to get in and out of a market with single transactions.

Cons of Single Theme ETFs

• They are subject to higher risk from declining growth stock multiples or sector risks.
• They are also highly volatile because of the higher risk.
• They require more active management than passive investing

Conclusion

The ability to invest in multiple companies within a hot sector makes thematic ETFs favorable. Consider investing in sustainable funds to reap significant benefits.