Thematic ETF investing is a trend that is gathering pace globally, and particularly in the US, where there are now ETFs focused on niche themes such as the millennial consumer market, marijuana and obesity.
In Australia, a lot of these ETFs have a global or regional focus. This not only gives investors a cost-effective and efficient way to invest outside of Australia, but also ensures there are enough quality companies within the index. This is a big benefit given Australian investors tend to be overly reliant on the domestic market.
Here I outline a few attractive investment themes in the market currently, and how investors can easily gain exposure.
The global healthcare sector is vast and offers the opportunity to invest in everything from cochlear implant manufacturers, to biotechs, and companies that run hospitals.
This sector has been one of the better performers in recent years and is set to continue as the sector is driven forward by government spending and private health insurers, along with ageing populations and the need for continued innovation.
While there are a few top performing Australian healthcare companies, some arguably trade at inflated valuations because of their scarcity in the market. The sector is also flooded with biotech companies that could be considered too small and speculative for most investor portfolios.
Arguably, investors can achieve better diversification by looking to global healthcare funds, which offer exposure to global giants, such as UnitedHealth Group and Cigna Corporation. ETFs worth considering in this sector include the BetaShares Global Healthcare ETF (ASX: DRUG) and Blackrock’s iShares Global Healthcare ETF (ASX: IXJ).
The technology sector is growing at a rapid rate and is such a broad sector that it is worth getting to know some of the key sub-sectors, such as cybersecurity, artificial intelligence, e-sports and software development.
A significant portion of the world’s largest technology firms are based in the US, so investors who are seeking broad exposure to the sector usually gravitate to the tech-heavy NASDAQ 100, which includes names such as Microsoft, Facebook and Twitter.
ETF options in this space include the BetaShares NASDAQ 100 ETF (ASX: NDQ) which replicates the Nasdaq index, and the Morningstar Global Technology ETF (ASX: TECH), which includes stocks that Morningstar believe have a competitive advantage and attractive prices.
Outside the US, the Asian technology market is also expected to outperform, driven by the younger, tech-savvy population and high levels of online activity in the region. BetaShares Asia Technology Tigers ETF (ASX: ASIA) was launched in 2018 to provide access to this growth market.
Through a tech-focused ETF, investors can also gain exposure to the booming e-sports phenomenon. Professional gaming, watched by a live audience, is said to surpass US$1 billion in revenue this year as the global audience expands to over 300 million.
Lastly, robotic and cybersecurity are two sub-sectors that are showing no signs of slowing. In recent years there have also been a number of technology funds launched in Australia including the BetaShares Global Cybersecurity ETF (ASX: HACK) and the ROBO Global Robotics ETF (ASX: ROBO).
With a global population of seven billion, which is expected to grow to almost 10 billion by 2050 (according to the World Population Prospects, UN), the UN expects demand for food to increase 70% by 2050. In addition, Asia’s burgeoning middle class is consuming more meat and dairy products, and agricultural land is expected to become increasingly scarce.
From a long-term perspective, the agriculture sector appears to be presenting significant opportunities for investors. ETFs available in this sector include the BetaShares Global Agriculture ETF (ASX: FOOD).
Investing in agriculture is not without risks however, as prices are heavily reliant on weather patterns and farm inputs such as fuel, fertiliser and pesticides. Having a global exposure to the sector is beneficial – while one country may be experiencing a drought, another will be experiencing a wet season.
Looking for more ideas?
As with any ETF, investors in sectoral or thematic fund should consider the underlying investments and whether a fund suits their risk profile. While a particular theme could be the new hot trend today, it can always fall out of favour further down the track.
It’s worth nothing that sometimes these more specialist ETFs have higher fees, particularly if they have an active management element, so reviewing the Product Disclosure Statement is critical.
Pay close attention to the fees, composition, and exposure the product provides to ensure alignment with your personal wealth goals.
If you’re looking for help to narrow down your options, there are comparison filters available, including the Bell Direct ETF Filter.