Other organizations divide up the thematics space differently. For example, iShares sees 5 megatrends shaping our future: technological breakthrough, demographics and social change, rapid urbanization, climate change and resource scarcity, and emerging global wealth.
According to research from National Bank Financial, thematic ETFs represent approximately 2% of the $204 billion in assets under management in Canada-listed equities ETFs. As of April, thematic ETF inflows in 2022 were $400 million, representing 3.7% of equities ETF flows and 2.7% of overall ETF flows, and generally matching 2021 inflows.
As with all ETF investing, investors should take a good look under the hood to make sure they understand what they are buying. Detractors say these ETFs come to market just when the underlying trend is topping and are usually money-losing propositions after launch.
Indeed, thematic ETFs are typically more volatile than those that track broad-based indexes. Long-term conviction is often required if these strategies are to pay off over time. In light of this, I believe these types of ETFs should represent less than 5% of total equities holdings.
Advisors should also look to see if there is overlap with other holdings in the portfolio. For example, technology-themed ETFs, like a cybersecurity ETF, often hold stocks that are already in a larger sector-based technology ETF. This can lead to an unintentionally overweight position in some stocks.
When new products are launched, appropriate due diligence is necessary. Investors should take into consideration the issuer’s track record. The ETF universe has expanded in leaps and bounds in the past decade, but not all products have survived the test of time.
Also, the management expense ratio of these investments is typically higher than most plain vanilla passive ETFs.
Personally, I have not rushed into the thematic space. However, I have been overweight many market sectors in varying degrees over time in my portfolios, like healthcare (I use the iShares Global Healthcare ETF; NYSE Arca: IXJ), technology (Technology Select Sector SPDR Fund; NYSE Arca: XLK), communications (Communication Services Select Sector SPDR Fund; NYSE Arca: XLC) and industrials (Industrial Select Sector SPDR Fund; NYSE Arca: XLI).
Although ESG is not considered a theme, I hold the BMO Clean Energy Index ETF (TSX: ZCLN) as a thematic clean energy holding in my dedicated ESG portfolio. It represents 3% of the overall portfolio.
So, although thematic ETFs might not be for everyone, for investors who have long-term conviction in an emerging, transformative trend, I believe that they offer a way to invest in a diversified manner with better risk control that individual stock selection.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
