Thematic ETFs

Investing is fundamentally about identifying and reacting to the right signals. Thematic investing is about accurately identifying and combining the trends, innovations, and disruptions that are reshaping industries.

The world is a constantly evolving organism, and as it evolves, megatrends emerge. These are significant shifts in society that often come in the form of technological advances or global dynamics, which have the potential to reshape entire industries. As investors, these macro-movements create long-lasting opportunities known as ‘thematics’.

Thematics are not short-term cycles; they are structural changes, often driven by disruptive technologies, demographic shifts, and regulatory transformations. These themes typically require time and conviction to fully materialise.

A historical example is the advent of personal computing (PC). While it took decades to mature, the convergence of key drivers such as the Intel 8086 microprocessor, legislative changes like the Bayh-Dole Act, and increasing educational attainment reshaped the workplace and laid the foundation for an entire industry. Patient investors who recognised this structural theme early on have been rewarded with incredible returns over time.

Thematic ETFs offer a strategic way to invest in emerging trends by bundling stocks from companies positioned to benefit from specific themes. These funds focus on structural, not cyclical, themes—providing exposure to areas like clean energy, biotechnology, or artificial intelligence. By doing so, they help investors align their portfolios with the future while mitigating the risks of individual stock selection.

Global X offers a comprehensive lineup of thematic ETFs, each designed to capture the growth potential of specific trends and innovations and crafted to provide investors with unique opportunities to capitalise on these emerging markets, sectors and long-term trends.

• Global X Battery Tech & Lithium ETF (ACDC)
• Global X Artificial Intelligence Infrastructure ETF (AINF)
• Global X Cybersecurity ETF (BUGG)
• Global X S&P Biotech ETF (CURE)
• Global X Defence Tech ETF (DTEC)
• Global X FANG+ ETF (FANG)
• Global X FANG+ (Currency Hedged) ETF (FHNG)
• Global X Fintech & Blockchain ETF (FTEC)
• Global X Artificial Intelligence ETF (GXAI)
• Global X Hydrogen ETF (HGEN)
• Global X US Infrastructure Development ETF (PAVE)
• Global X ROBO Global Robotics & Automation ETF (ROBO)
• Global X Semiconductor ETF (SEMI)
• Global X Morningstar Global Technology ETF (TECH)

Over the past year, several of Global X's thematic ETFs have demonstrated strong performance. Let's take a closer look at the top three performers, starting with PAVE.

Global X US Infrastructure Development ETF (PAVE)

The Global X US Infrastructure Development ETF (PAVE) is designed to capitalise on the renewed emphasis on infrastructure within the United States. It invests in American companies involved in the planning, construction, engineering, material sourcing, and distribution of equipment for large-scale infrastructure initiatives. This strategy targets sectors essential for modernising and expanding infrastructure across the nation.

Why Invest in PAVE? Investing in PAVE offers exposure to the US infrastructure sector, which is in urgent need of improvement, as highlighted by a C- grade from the American Society of Civil Engineers. With nearly US$1 trillion allocated for infrastructure through recent legislative acts, long-term growth opportunities are set to increase. PAVE takes an unconstrained approach, investing across various sectors driving infrastructure development. This makes it a valuable component for gaining exposure to the ongoing US infrastructure boom as an emerging megatrend.

Global X Semiconductor ETF (SEMI)

The Global X Semiconductor ETF (SEMI) is a thematic ETF that focuses on companies involved in the design, distribution, manufacture, and sale of semiconductors. This sector is crucial for the advancement of technology, underpinning developments in everything from smartphones to artificial intelligence, meaning it has excellent potential for growth.

Why Invest in SEMI? SEMI offers exposure to the semiconductor sector, a critical foundation for advancements in electronics, computing, and telecommunications. It provides diversified access to companies involved in semiconductor design, manufacturing, and distribution, capitalising on growing demand driven by AI, 5G, and IoT trends. With strong historical performance, the ETF reflects the sector's growth potential and ongoing innovation.

Global X S&P Biotech ETF (CURE)

The Global X S&P Biotech ETF (CURE) is a thematic ETF designed to track the performance of the biotechnology sector, focusing on companies involved in the research, development, and manufacturing of biotechnological products. This sector is characterised by rapid innovation and the potential for significant breakthroughs in healthcare and medicine.

Why Invest in CURE? CURE offers exposure to innovative healthcare companies driving breakthroughs in medical research and biotechnology. It provides diversified biotech exposure, reducing risks by investing across multiple firms and therapeutic areas. With strong historical returns, the ETF capitalises on the rapid innovation and growth potential in the biotech sector, positioning investors for substantial future gains.

Thematic ETFs are tools that allow you to capitalise on these long-term trends by encapsulating a basket of all the stocks that may benefit from the developments. They are formed by looking at a larger universe of stocks and then applying strict rules to ensure significant exposure to the desired thematic. Examples of thematics and their ETFs include the rise of electrification, the resurgence of US infrastructure development, and the advancement of medicine and biotechnology. Thematic ETFs also offer a way to invest in these long-term trends without having to pick individual stocks, providing both diversification and targeted exposure.

Investing in thematic ETFs with Global X is simple. You can choose to use an online trading account, stockbroker, or financial adviser. Once you have created an online trading account, all you need to do is review the ETFs PDS and TMD, then use the exchange code to buy the ETF via your trading account.

Global X offers a range of thematic ETFs, each targeting different asset classes, sectors and trends, allowing investors to choose the ones that align with their investment goals and interests.

If you've been considering thematic investing, there are some excellent benefits that could mean it's the right choice. These include:

Targeted Exposure to Growth Sectors

One of the main benefits of investing in thematic ETFs is the targeted exposure they offer to specific growth sectors. By focusing on a particular theme, such as technology, healthcare, or renewable energy, thematic ETFs allow investors to concentrate their investments on areas they believe will experience significant growth, an investment decision which could lead to substantial returns if the chosen theme performs well.

Potential for High Returns

Thematic ETFs also have the potential to deliver high returns, especially if the chosen theme experiences significant growth. By investing in companies that are at the forefront of innovation, disruptive technology and industry transformation, thematic ETFs can capitalise on long-term trends and structural changes in the market, making them an attractive option for investors looking to achieve substantial growth over the long term.

Diversification

Despite their focus on a specific theme, thematic ETFs still provide diversification by investing in a range of companies within that theme, and this diversification helps to spread risk, reducing the impact of poor performance by any single company on the overall portfolio. For example, a thematic ETF focused on the technology sector might include companies involved in hardware, software, and internet services, ensuring a balanced exposure to different aspects of the sector.

Ease of Investment

Investing in thematic ETFs is relatively simple and straightforward, as investors can purchase shares of these ETFs through brokerage accounts, just like they would with individual stocks. This ease of investment makes thematic ETFs accessible to a wide range of investors, from beginners to experienced professionals, and it also provides a convenient way to invest in emerging trends without the need for extensive research and stock picking.

Naturally, there are also some risk factors you need to be aware of before investing involves risk and deciding whether or not thematic investing is the right path, including:

Sector-Specific Risk
One of the main risks associated with thematic ETFs is concentration risk, and this simply means that since these ETFs focus on a specific theme or sector, they may be more susceptible to market volatility and downturns affecting that particular area. For example, a thematic ETF focused on renewable energy might experience significant losses if the sector faces regulatory challenges or a decline in demand for alternative energy sources. This concentration risk means that thematic ETFs can be more volatile than broader, more diversified ETFs.

Timeline Risk
Investment timeframe risk refers to the uncertainty that arises from the mismatch of an investor's time horizon and the volatility of their investments. Short-term market fluctuations may impact a specific thematic ETF and could impact the performance of investments if the investor needs to access funds before the market has had time to recover. Investors with longer timeframes may be able to ride out volatility, but those with shorter time horizons may face greater risks to their capital if a thematic’s potential does not come to fruition within that time period.