Thematic ETFs: A Guide to the Market's Biggest Megatrends
- Let's cover everything investors need to know about thematic ETFs.
- One of the appeals of thematic ETFs is that they offer a way to bet on a trend without having to pick individual stocks.
Thematic ETFs are one of the most exciting corners of the fund world. They promise exposure to megatrends like artificial intelligence, clean energy or electric vehicles. But for all their buzz, thematic ETFs also come with real risks, and they work differently than broad index funds.
In this guide, we’ll explain what thematic exchange-traded funds are, how they’re constructed, what drives their performance and how investors should think about using them.
What Is a Thematic ETF?
A thematic ETF is a fund that invests in companies tied to a particular theme. Unlike traditional sector ETFs, which stick to predefined industries like technology or healthcare, thematic ETFs cut across sectors and industries in search of a unifying concept.
That concept could be technological, like cloud computing, cybersecurity or robotics. It could be demographic, like aging populations or millennial spending habits. Or it could be environmental or social, like climate change or gender diversity.
The unifying trait is that thematic ETFs are idea-driven. They don’t aim to capture the entire economy or follow traditional asset class breakdowns. Instead, they try to capitalize on structural shifts that could reshape the world and markets over the long run.
How Thematic ETFs Are Built
Many thematic ETFs are equity-based and passively managed, though they can look quite different under the hood from traditional index funds.
Rather than tracking broad indexes like the S&P 500 or the Russell 1000, these funds rely on custom-built indexes that reflect a fund provider’s interpretation of the theme. That often involves proprietary screens and classification systems. For example, a robotics ETF might include companies that earn at least 50% of their revenue from automation and exclude diversified conglomerates.
Some thematic ETFs use pure-play filters, requiring companies to be tightly aligned with the theme. Others take a more inclusive approach, adding companies that may only be loosely related.
Weighting schemes also vary. While some funds use traditional market-cap weighting, many opt for equal weighting or modified strategies that prevent mega-cap stocks from dominating. This helps smaller, more innovative firms get representation but also increases volatility.
While index-based thematic ETFs are popular, an increasing number of funds in the category are actively managed, relying on analysts to pick and choose stocks that fit the theme.
Whether a fund is index-based or actively managed, the methodology matters, and two ETFs with the same label can hold entirely different portfolios.
Popular Themes in 2025
Over the past decade, the number of thematic ETFs has exploded. As of mid-2025, there are over 350 thematic ETFs listed in the U.S., covering an increasingly specific array of trends. Some of the most popular themes include:
- Artificial Intelligence: Capitalizing on the rapid advances in AI, from chipmakers to software platforms
- Clean Energy: Including solar, wind, hydrogen and battery technology companies
- Cybersecurity: Tapping into growing spending on digital defense as threats mount globally
- Genomics and Biotechnology: Focused on breakthroughs in gene editing, diagnostics and personalized medicine
- Space Economy: Exposure to satellite operators, rocket launch companies and space tourism
- Blockchain and Digital Assets: Crypto miners and broader blockchain infrastructure companies
Themes also evolve. Some, like the metaverse or 3D printing, catch fire and fade. Others, like AI or clean energy, can persist for years.
The Risk/Reward Trade-Off
Thematic ETFs are riskier than traditional diversified funds. They offer the potential for huge gains but also sharp losses. That’s because themes are inherently narrow bets. They typically hold 30-50 stocks, far fewer than broad market funds.
In a strong market or during periods of investor excitement, this can be a tailwind. But during downturns or shifts in sentiment, thematic ETFs can drop much faster than the broader market.
Thematic vs. Sector ETFs
It’s easy to confuse thematic ETFs with sector ETFs, but they’re fundamentally different.
Sector ETFs are designed to give exposure to a defined portion of the economy, like energy, technology or financials. They follow established classification systems like GICS or ICB, and tend to have relatively stable compositions over time.
Thematic ETFs, by contrast, are more opinionated. Their holdings shift with the fund provider’s interpretation of the theme. That means greater flexibility but also more subjectivity.
For example, a traditional tech ETF might include Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA) based on sector definitions. A thematic AI ETF might hold Nvidia, UiPath Inc. (PATH), Palantir Technologies Inc. (PLTR) and a handful of unprofitable companies. They might all be in different industries, but they are all tied to the theme in some way.
Thematic ETFs vs. Individual Stocks
One of the appeals of thematic ETFs is that they offer a way to bet on a trend without having to pick individual stocks. For investors who believe in, say, EV adoption or renewable energy but don’t want to choose between Tesla Inc. (TSLA) and Byd Co. Ltd. (BYDDY) or First Solar Inc. (FSLR) and Enphase Energy Inc. (ENPH), thematic ETFs provide diversified exposure.
If you’re confident in a single stock and don’t need diversification, a direct investment might offer more upside (and downside). If you want broader exposure but still want to lean into your convictions, a thematic ETF can be a middle ground.
The Bottom Line
Thematic ETFs offer a compelling way to invest in the future. They bundle big ideas into a single fund, giving investors access to structural trends shaping the economy.
To find a list of all the thematic ETFs available, check out etf.com's Theme Investing topics page.
