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Thematic Investing Puts Spotlight on These ETF Areas

Sweta Jaiswal, FRM
·5 min read

The thematic investing trend is continuously gaining popularity among market participants. Given the uncertainty surrounding the coronavirus pandemic, investors have been consistently looking for solid options for putting their money into. In the pandemic-stricken 2020, the investment world saw a series of major events like the elections, lockdowns and restrictions to control pandemic, increasing remote working and digitization trends along with growing inclination toward sustainable and responsible investing.

Against this backdrop, let’s take a look at some of the themes that are currently trending in the investment world:

Clean Energy ETFs

Alternative energy includes any energy source that acts as a replacement to conventional and non-renewable fossil fuel. This space has been in the spotlight of late for many reasons. Increasingly, large corporations are making or promising investments to gain the carbon-neutral status. Notably, favorable government initiatives and federal policies, which include tax incentives to encourage installation, have accelerated global market growth for clean energy in 2020. Moreover, despite turbulences arising from the coronavirus pandemic, both solar and wind energies have been dominating the global renewable space of late.

The space is expected to get stronger under the Joe Biden administration. Biden is expected to talk about the climate emergency on global platforms and ensure that the United States achieves a 100% clean energy economy and net-zero emissions, no later than 2050. Going on, Biden’s climate and environmental justice proposal will make a federal investment of $1.7 trillion over the next 10 years, leveraging further private sector and state and local investments to stand at more than $5 trillion.

Thus, investors can consider the following ETFs -- iShares Global Clean Energy ETF ICLN, Invesco Solar ETF TAN, First Trust NASDAQ Clean Edge Green Energy ETF (QCLN) and ALPS Clean Energy ETF (ACES) (read: A Complete Guide to Clean Energy ETFs).

Marijuana ETFs

The Biden administration is expected to decriminalize cannabis at a federal level in the United States. The House passed a bill in December to decriminalize and tax marijuana at the federal level but Senate Republicans hindered the success of the measure. The bill aims to decriminalize cannabis at the national level for the first time and exclude it from the list of federally-controlled substances and remove certain federal convictions. Now, with the Democrats controlling the U.S. Senate, it might get easier for the Biden administration to take steps toward decriminalizing marijuana.

Going on, vice-president Kamala Harris has always supported cannabis decriminalization. She is also the lead sponsor of the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act of 2019, which sought to end federal prohibition of cannabis, per a Reuters article. Thus, investors can consider The Cannabis ETF THCX, ETFMG Alternative Harvest ETF MJ, AdvisorShares Pure Cannabis ETF (YOLO) and Global X Cannabis ETF (POTX) (read: Cannabis ETFs Spike on Jazz-GW Pharma Deal).

AI, Robotics & Cyber Security

AI is fast changing the business landscape by expanding opportunities, driving revenues and enhancing efficiencies. It helps enhance almost everything, including advertising, healthcare, robotics, retail, video streaming, gaming and urban development.

We are living in an era largely dominated by AI applications and technological advancements. Amid the coronavirus crisis, demand for online services has increased, which in turn has led to the dominance of AI. Globally, the AI market is estimated to see a CAGR of 29%, rising from a worth of $42.8 billion in 2019 to $152.9 billion in 2023, according to an Analytics Insight article.

The robotics market is flooded with opportunities as robots are being used for jobs such as sanitizing hospitals, homes and workplaces along with monitoring, surveying, handling, and delivering food and medicines.

However, increasing adoption of these technologies is exposing businesses, governments and organizations to cyber risks. Given the severity of the situation, Cybersecurity Ventures expects the worldwide expenditure on cybersecurity to surpass $1 trillion cumulatively from 2017 through 2021. Per a Grand View Research report, the global cyber-security market is expected to reach a worth of $241.1 billion, at a CAGR of 11% from 2019 to 2025. Accordingly, our investors can consider Global X Robotics & Artificial Intelligence ETF BOTZ, First Trust Nasdaq Artificial Intelligence and Robotics ETF ROBT, ROBO Global Robotics & Automation ETF (ROBO), iShares Robotics and Artificial Intelligence Multisector ETF (IRBO), First Trust NASDAQ CEA Cybersecurity ETF (CIBR) and ETFMG Prime Cyber Security ETF (HACK) (read: A Sneak Peek Into Popular ETF Investing Areas for Q1).

Sustainable Investing ETFs

The coronavirus pandemic has impacted the investing world, with market participants showing greater interest in conscious investing, spurring demand for environmental, social and governance (“ESG”) funds. According to the Forum for Sustainable and Responsible Investment’s 2020 trends report, total U.S.-domiciled sustainably invested assets under management, including institutional and retail, rose 42% to $17.1 trillion from $12 trillion between 2018 and 2020, per a CNBC article. Going on, MSCI’s Linda-Eling Lee has said to CNBC’s “ETF Edge” that ESG-themed investments should stay in demand considering the growing interest in sustainable and socially-responsible investing following an “extraordinary year” in 2020, as mentioned in a CNBC article.

Going on, 2020 is being called the “tipping point” year for ESG investments considering the huge inflow into the space, per an Oilprice.com article. The same article states that the largest asset manager in the world, BlackRock, expects to have $1.2 trillion in ESG assets within the next 10 years. Going by the same write-up, Biden, who is also being called the “green president,” will give a lot many reasons to investors for favoring the sustainable investment space. The space is expected to see favorable government initiatives, investments and federal policies under the Biden presidency.

To gain exposure to ESG investments, investors can consider iShares ESG MSCI USA ETF ESGU, Xtrackers MSCI USA ESG Leaders Equity ETF USSG, Vanguard ESG U.S. Stock ETF (ESGV) and Nuveen ESG Large-Cap Growth ETF (NULG) (read: Will ESG ETFs Flourish Under a Biden Presidency? Let's Explore).

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