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Thematic exchange-traded funds (ETFs) have attracted inflows of c. $38.8 bn in H1 FY21, up from $7.8 bn in H1 FY20. At present, there are191 ETFs compared with 55 of them in existence five years ago, with $164.2 billion in AUM, and $11.2 bn respectively. Generally speaking, buying ETFs enables more diversification than individual stocks, while investing in themed ETFs is riskier than in broad based ETFs due to its focus on certain theme.

We think it may be insightful to refer onto themes investors increasingly have seen as growing markets in midterm and long term, despite short term volatility and some longer-term risks- which in parallel reflect expectations that those are growing businesses too, and as a such interesting to general public.  Thus, according to WSJ those businesses/themes are:

1. Cloud computing

In spite of current volatility due to easing of Covid restrictions and partial back to premises from remote work, shifting to cloud will continue as steady trend.

2. Cannabis,

After being legalized to some extent for recreational and medical use across majority of states in U.S, cannabis and hemp industries have emerged, and projected to double in midterm. On a negative side, there are compliance issues and industry consolidation, which may cause volatility and poses risks for smaller companies with limited resources.

3. Infrastructure,

Government spending into infrastructure creates new jobs and stimulates the economy. Thus, President Biden seeks for $4.5 trillion of those investments. Yet, there would be some volatility in stock prices if the bill failed to pass.

4. Clean Technology

Despite tech stocks and ETFs in the same theme lagged in Q1 2021, due to partial recovery from COVID and reopening in the same quarter, the tech stocks bounced back in Q2 with a return of 11.4%, and have continued the longer trend of booming demand for technology in 2020. In particular, demand for CLEAN tech is furtherly backed by the Biden administration, which has prioritized clean-tech investments such as renewable energy and electric vehicles. The choice of this theme comes with risk of volatility in short term, whereas in the scenario of an economic downturn or stagflation, there would be a steep fall.

5. AI and robotics.

Companies have learned that adoption of digital technologies and automatization enabled by AI, increases efficiency. Since automatization delegate manual and repetitive jobs to machines and cause job losses, we might expect significant pushback from unions. Also, high investment costs could slow demand too.