Low-cost exchange-traded funds (ETFs) have only continued to grow in popularity in recent months. Investors are turning to these vehicles for their exposure to many different names and areas and for the low fees associated with them in comparison with many other types of investment opportunities. According to Investors.com, the ETF industry has thrived in the first months of 2018, with combined assets up 38% between January 2017 and January of this year.
On top of that, there are more ETFs and more areas for potential investment than ever before; as of January 2018, there were 1,853 ETFs, 7% more than there had been just a year prior. In the fast-growing world of ETFs, there are many different areas an investor can explore. Some of the most popular new vehicles, however, focus on cutting-edge industries like artificial intelligence (AI), blockchain and robotics. (For more, see Investors Turn to Artificial Intelligence.)
Thematic ETFs Present Long-Term Opportunities
According to CFRA's senior director of ETF and mutual fund research, Todd Rosenbluth, so-called thematic ETFs are among the most trendy and promising investments at this time. Rosenbluth suggested that, "unlike traditional sector or well-diversified ETFs, these ETFs focus on robotics, blockchain or other potentially long-term investment trends." He added that some of the most popular of these – including Global X Robotics & Artificial Intelligence (BOTZ), ROBO Global Robotics & Automation Index (ROBO), Reality Shares NASDAQ Nexgen Economy (BLCN) and Innovation Shares NextGen Protocl ETF (KOIN) – all "tend to charge a premium price relative to market-cap-weighted ETFs." Nonetheless, "as more asset managers compete for investor interest, fees have and will continue to move lower."
Why might these ETFs be drawing so much interest from investors, despite of the fact that they tend to be more narrowly focused and more expensive to engage with than more traditional ETFs? For one thing, it's important not to discount the effect of novelty. ETFs as a general category of investment vehicle are highly familiar, but those focusing on these spaces are relatively new.
Perhaps even more important, though, is the optimism and excitement that many investors feel about these exploratory new industries themselves. Blockchain has been hailed by many analysts as a breakthrough technology that may be as or more important than the internet itself. Robotics continues to play a larger and larger role in business of all kinds, and artificial intelligence occupies a similar space. While none of these three areas has truly transformed the business world (or the world at large) as of yet, there are many who believe that one or more of these industries has strong potential to do so. (For more, see Investing in Robotics Through ETFs and Stocks.)
Long-Term Investors Should Not Be Complacent
Rosenbluth reminds long-term investors in ETFs, whether traditional or thematic, that it's crucial to remain involved in the investment process. It can be tempting to leave ETF holdings alone, but Rosenbluth suggests instead that "investors should regularly review what's inside the ETFs they're holding to understand how the securities fit going forward. Investors should also periodically rebalance their assets as positions do not move up or down in tandem." In other words, just because an ETF may be passively managed, that does not necessarily mean that an investor can treat his or her individual investment passively.
This type of advice is likely to hold just as much for a traditional ETF comprising a basket of stocks as it would an ETF representing new interests in the AI, robotics or blockchain worlds. Indeed, because these spaces are constantly changing, one might argue that investors in ETFs in these areas should be even more vigilant in monitoring their investments than they would be otherwise. There remain great opportunities for investment success, but they do require care and maintenance. (For additional reading, check out: The Best ETFs of 2019: A Comprehensive Guide.)