What Investors Can Learn From Thematic ETFs

When it comes to "thematics," past performance doesn’t always matter.

Reviewed by: Sumit Roy
Edited by: Sumit Roy

The success of thematic ETFs often comes down to being at the right place at the right time. Consider these examples.

In 2020, the US Global Jets ETF (JETS) was popular among bargain hunters who were trying to benefit from an expected post-pandemic rebound in travel. They added $2.3 billion to the fund over the course of that year. 

In 2021, investors bought the Global X U.S. Infrastructure Development ETF (PAVE) ahead of the passage of the $1.2 trillion U.S. infrastructure bill—the Infrastructure Investment and Jobs Act—fueling inflows of $4 billion that year. 

Then in 2022, the Pacer U.S. Cash Cows 100 ETF (COWZ) picked up a whopping $9.3 billion of new money as investors abandoned high-growth companies in favor of high-quality, profitable companies (sure, you could argue that COWZ is a “factor ETF,” but that’s ultimately just another way of grouping stocks together, with a focus on quantitative rather than qualitative characteristics).    

Each of these ETFs was slogging away with little to no assets before some exogenous event or macro shift caused investors to embrace them in a major way.  

You could even make the same case for the success of Cathie Wood’s famous ARK Innovation ETF (ARKK). This was an ETF with less than $100 million in assets in 2017. In 2018 and 2019, as the market environment began to strongly favor high-growth stocks, assets topped $1 billion, and then when growth went into overdrive during the COVID-19 bubble of 2020-2021, and the fund’s assets exploded to as much as $28 billion. 

Once again, right place at the right time, and, in ARK’s case, with a lot of great marketing from Cathie Wood and her team.  

Another interesting point is that performance doesn’t matter for attracting or retaining assets. ARK has had a lousy performance, but investors are sticking with it. JETS has been grounded since 2020, but it’s kept most of the big inflows it saw that year. 

There’s a lesson in all this for ETF issuers: Success might not come immediately, but when it does, it can be fast and furious.   

Follow Sumit Roy on Twitter @sumitroy2     

Sumit Roy is the senior ETF analyst for etf.com, where he's worked for 12 years. Before joining the company, Roy was the managing editor and commodities analyst for Hard Assets Investor. He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing pickleball and snowboarding.