Thematic ETF's - to invest or not to invest?

tel_

It's occurred to me that if your are solely trying to outperform one of the main indexes - global tracker or S&P500 tracker - why not just invest in a NASDAQ 100 ETF instead? Whilst we know past performance is not a guarantee of future gains etc, surely it's a more reliable option than say investing in a EV, cyber security, robotic, AI, green energy, or any other 'flavour of the year' ETF?

The only reason I can see for investing in a thematic ETF, is to give you even more diversification away from Apple, Microsoft, Alphabet, Amazon etc, which are all in the main popular trackers.

I would love peoples thoughts on why they opted for a themed ETF, and which one(s) they decided to invest in.

george4064

I hold L&G Battery Value-Chain ETF and L&G Cyber Security ETF, both are satellite holdings and do not form a core part of my portfolio,

I invested in them because I think that the cyber security sector will grow, and that the world will continue to gradually adopt electric vehicles supported by government support/campaigning.

Hoenir

tel_ said:

It's occurred to me that if your are solely trying to outperform one of the main indexes 

Sounds like speculation rather than investing. The aim of holding a diversified portfolio is to minimise losses. Anyone can take a punt and be spectacularly lucky or even worse nurse sizable losses. 

Linton

In my view investing solely to outperform an index is playing an expensive  game. If it is with money that doesn’t really matter, fine though perhaps you could find better uses for both your time and your money. If the money involved is life-changing then it is potentially dangerous gambling.

If the outcome is important to your future, better to have a lower target and use your investment skills to achieve it at minimum risk.

Malthusian

tel_ said:

It's occurred to me that if your are solely trying to outperform one of the main indexes - global tracker or S&P500 tracker - why not just invest in a NASDAQ 100 ETF instead?

Becaues the NASDAQ 100 is a main index?

The NASDAQ 100 covers US technology companies of all sizes so all investing in a NASDAQ 100 ETF instead of the S&P 500 achieves is to reduce diversification. It will outperform the S&P 500 when technology companies are in favour and underperform it when they aren't.

gm0

Timing is all.
And understand how many stocks are in  it.

So satellite bets where you think there is major growth beyond general economy - and that the companies you are investing in will live to see the rewards. Or a cynical plan to get in and out again during the hype cycle i.e. market timing.  Good luck.

Debt equity swaps frequently wipe out existing share holdings as a new sector consolidates and refinances when initial enthusiasm meets a harder reality. And excess debt. So plenty of total capital losses to factor in.

As an example think telewest and ntl for "internet infrastructure" themed etf late 90s - 2000-2004 - companies like those two, bt, maybe voda, kcom etc. but not a super long list.

FTSE All Share at the time - the index went down 43% because of the general .com is not magic after all hype bust   (43% index not tr) 

But Telewest lost 73% in 2001 and then up to 98.5% via the debt equity swap
NTL owned them after their own reboot and recapitalisation via chapter 11.  So that's strike 2
Holdings for existing investors are near or at zero after the refinancing. 
So subsequent share prices irrelevant. 
And BT lost 53% in 2001 so more than general market.

Buy this "themed" investment at the wrong time.  Ouch.  Early enough - not as bad.

Older examples

Canals
Railways
US telegraph

More financial blood on the carpet for the initial believers investing in rollout who didn't sell out a good chunk via bigger fool theory during the mania and could not make it as sustainable businesses meanwhile.

Bostonerimus1

tel_ said:

It's occurred to me that if your are solely trying to outperform one of the main indexes - global tracker or S&P500 tracker - why not just invest in a NASDAQ 100 ETF instead?  .

Why would you want to outperform an index? That way lies madness. Anyway NASDAQ 100 looks pretty mainstream to me.

Hoenir

Malthusian said:

tel_ said:

It's occurred to me that if your are solely trying to outperform one of the main indexes - global tracker or S&P500 tracker - why not just invest in a NASDAQ 100 ETF instead?

Becaues the NASDAQ 100 is a main index?

The NASDAQ 100 covers US technology companies of all sizes so all investing in a NASDAQ 100 ETF instead of the S&P 500 achieves is to reduce diversification. It will outperform the S&P 500 when technology companies are in favour and underperform it when they aren't.

The Nasdaq though is an actual market not an index. Market capitisation based. Whereas entry and retention in the S&P500 requires amongst other criteria profitability. With refinement for freefloat, liquidity, share classes etc determining the weighting. The S&P 500 is drawn from companies listed on any of the 3 US stock exchanges. 

tel_

Many thanks for all your comments on this subject - I've read them carefully and enjoyed the varied opinions everybody has.

tel_

george4064 said:

I hold L&G Battery Value-Chain ETF and L&G Cyber Security ETF, both are satellite holdings and do not form a core part of my portfolio,

I invested in them because I think that the cyber security sector will grow, and that the world will continue to gradually adopt electric vehicles supported by government support/campaigning.

I do think it's important to re-visit the factsheets on themed ETF's if you do invest in them. I say this as I remember analysing WisdomTree's Battery Solutions ETF (CHRG) about 3 years ago, and the top holdings that now appear in the fund are totally different to back then. Joby Aviation and Archer Aviation are now top holdings, and what I would consider as very speculative, and high-risk plays.

tel_

Linton said:

In my view investing solely to outperform an index is playing an expensive  game. If it is with money that doesn’t really matter, fine though perhaps you could find better uses for both your time and your money. If the money involved is life-changing then it is potentially dangerous gambling.

If the outcome is important to your future, better to have a lower target and use your investment skills to achieve it at minimum risk.

Wise words as always from you Linton.

I got burnt in the stock market previously - not life changing amounts, but money I worked hard for and lost.