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Best Thematic ETFs for 2020

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Globally, thematic investing has tripled over the past five years to around $40.76 billion, per Morningstar Inc. This is steadily taking over the investment world, largely due to the introduction of theme-based funds and also for its long-term and easy-to-comprehend approach. Thematic investing requires investment in companies that can benefit from the technological, demographic and environmental changes (read: Top ETF Areas for 2020).

Let’s take a look at some of the themes that are currently in vogue.

AI, Robotics, and Cyber Security

We are living in an era that is largely dominated by AI applications and technological advancements. Revolutionary technologies like AI, ML and IoT are fast changing  the business landscape by expanding opportunities, growing revenues and enhancing efficiencies. In fact, a Research and Markets report states that the global robotics market is expected to see a CAGR of 25% between 2019 and 2024. Now the application of robots is not just limited to industrial use but a plethora of other areas like healthcare, entertainment, retail, automobile and defense.

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 to 2021. Per a Grand View Research report, the global cyber security market is expected to reach a worth of around $241.1 billion, at a CAGR of 11% from 2019 to 2025. We have shortlisted the following ETFs for our investors to consider:

Global X Robotics & Artificial Intelligence ETF BOTZ

The fund tracks investment results that correspond generally to the performance of the Indxx Global Robotics & Artificial Intelligence Thematic Index. Notably, the fund provides exposure to the performance of companies which benefit from increased adoption of AI, robotics and automation. The fund has 38 holdings with an AUM of $1.52 billion. It charges 68 bps in fees (read: ETFs to Gain as Surgical Robots Rise in Popularity).

iShares Robotics and Artificial Intelligence Multisector ETF IRBO

The fund tracks investment results that correspond generally to the performance of the NYSE FactSet Global Robotics and Artificial Intelligence Index. Notably, the fund provides exposure to companies that could benefit from the long-term growth and advancement in robotics and AI. The fund has 103 holdings with an AUM of $65.7 million. The fund charges 47 bps in fees (read: Here's Why You Should Invest in Robotics ETFs).

ETFMG Prime Cyber Security ETF HACK

The fund is a portfolio of companies providing cyber security solutions that include hardware, software and services. It seeks investment results that correspond generally to price and yield, before fund fees and expenses, of the Prime Cyber Defense Index. Having amassed $1.52 billion in AUM, the fund charges 60 basis point in fees (read: 5 Tech ETFs Riding High on Iran Tensions).

Funds Focused on Climate Change

In 2020, climate change risks will be a mainstream discussion for building portfolios as it can be more expensive to ignore then to face them (per a Financial Times article). Therefore, to gain from this trend of considering climate change while building portfolio, investors can focus on alternative energy funds and/or environmental, social and governance (ESG) investing strategy. In fact, per Morningstar Inc., funds that consider the ESG parameters in the investment strategies outperform those that do not consider. Interestingly, 73% of ESG indexes have been beating their non-ESG counterparts since inception.

Meanwhile, alternative energy  includes any energy source that acts as a replacement to conventional and non-renewable fossil fuel. Going by an International Energy Agency (IEA) report, worldwide supplies of renewable electricity are estimated to expand 50% within five years. Moreover,  according to the IEA, renewable energy sources are anticipated to make up 30% of the world’s electricity by 2024 in comparison to the current 26%.

Thus, investors can take a look at the following ETFs:

Xtrackers MSCI USA ESG Leaders Equity ETF (USSG - Free Report)      

The fund tracks the investment results that correspond generally to the performance of the MSCI USA ESG Leaders Index. Notably, the MSCI USA ESG Leaders Index is comprised of large and mid-cap companies in the U.S. market and provides exposure to companies with superior ESG performance in comparison to their sector peers. The fund has 314 holdings with an AUM of $1.70 billion. The fund charges 10 bps in fees (read: 9 Successful New ETFs of 2019).

Vanguard ESG U.S. Stock ETF ESGV

The fund tracks the performance of the FTSE US All Cap Choice Index comprising large, mid, and small-capitalization stocks. It does not include companies operating in adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling, and nuclear power industries. It also doesn’t consider companies not meeting U.N. global compact principles and diversity criteria. The fund has 1531 holdings with an AUM of $895.5 million. It charges 12 bps in fees (read: Are ESG ETFs the Right Choice for 2020?).

Invesco Solar ETF TAN

The fund is based on the MAC Global Solar Energy Index which is comprised of companies in the solar energy industry. It has 22 holdings. The fund’s AUM is $460.7 million and the expense ratio is 0.70% (read: Best & Worst ETF Zones of 2019).

ALPS Clean Energy ETF ACES                  

The fund seeks to track the performance of an index comprised of U.S. and Canadian based companies that primarily operate in the Clean Energy sector. It comprises 32 holdings. The fund’s AUM is $121.3 million and expense ratio, 0.65%.

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