Thematic exchange traded funds (ETFs), or those ETFs focusing on hyper-focused, narrow, refined or even isolated market segments, are a growing part of the ETF universe. While once doubted by nearly all ETF market participants, several thematic ETFs have proven successful over the years and issuers continue targeting specific market niches with new, highly focused funds.

Some thematic events are created in response to macroeconomic and geopolitical events. For example, the Global X U.S. Infrastructure Development ETF (PAVE) debuted in March as a response to President Trump's campaign promise to increase spending on America's ailing infrastructure by $1 trillion.

PAVE tracks the INDXX U.S. Infrastructure Development Index, which includes construction companies, heavy machinery manufacturers, engineering firms and raw materials makers. That index separates PAVE from rival, established infrastructure ETFs because many of those funds are not dedicated to U.S. stocks, which diminishes their leverage to Trump's audacious infrastructure efforts. (For more, see also: A New Infrastructure ETF Hits the PAVEment.)

New York-based Global X is one of the largest purveyors of thematic ETFs and has launched seven such funds over the past year.

“Global X chooses themes, which include technological development areas such as artificial intelligence, that it says will play out over multiple decades, even if they are intermittently sidelined in the short-term,” reports Bloomberg.

PAVE has almost $6.6 million in assets under management and has outpaced the S&P 500 in its nearly two months on the market. Other successful niche ETFs go beyond the world of politics or environmental, social and governance (ESG) investing to address burgeoning market segments under-represented by traditional ETFs.

For example, the PureFunds ISE Mobile Payments ETF (IPAY) became the world's first ETF dedicated to the booming mobile payments theme when it debuted in July 2015. Think about how often consumers use credit and debit cards and options such as Apple Pay or PayPal over cash and IPAY looks like an ETF right for the times. (For more, see also: Top 5 Infrastructure ETFs of 2017.)


“It is estimated by the Electronic Transaction Association (ETA) that 70% of these transactions (U.S. consumer transactions) are conducted electronically. While the basic infrastructure that facilitates electronic payments (e-payments) has been in place for decades, it has recently evolved to facilitate the demands of a now global industry,” according to PureFunds.

IPAY is not some fly-by-night ETF home to unheard of stocks. The ETF's top 10 holdings include familiar names such as Dow components Visa Inc. (V) and American Express Inc. (AXP).

More importantly, investors are recognizing the validity of IPAY's concept. In 22 months on the market, IPAY already has over $100 million in assets under management. The ETF is up 16% over the past year. This year, IPAY is beating the largest financial services ETF by a margin of better than 5-to-1.

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