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by Christoph Platt, Euro am Sonntag
AInvestors are always on the lookout for winners – be they individual stocks or investment themes that can generate high returns. The desire to be active in very special and hopefully promising investment segments has led to a sharp increase in the number of themed funds in recent years. Your assets under management almost tripled within three years.
The ETF division is also contributing to this growth. There are now a number of passive index funds on the market that focus on special investment segments. They cover topics as diverse as video games, robotics, aging populations or forestry.
The rating agency Morningstar looked at the performance of the theme ETFs in the current year and identified the best and worst portfolios since the beginning of January (see table below). In line with general stock market trends, ETFs from the technology and health sectors are at the forefront.
By far the most successful index fund in 2020 is the ETF WisdomTree Cloud Computing. By the reporting date on May 23, it had increased by almost 38 percent. The ETF benefits from the current development. “During the market turmoil triggered by the corona virus, stocks that offered technology cloud storage solutions that made home office operations possible were particularly in demand,” said Morningstar’s Ali Masarwah. One of the strongest winners in the portfolio was Zoom Video Communications, a stock that has risen sharply due to the high demand for video conferencing.
Playing in a crisis
The second-placed fund was also able to take advantage of the current situation. The ETF Van Eck Vectors Video Gaming & eSports gained 27 percent this year. The index followed by the ETF includes the video game giants Tencent and Activision Blizzard, which have benefited from the growing demand for home entertainment.
The ETF First Trust Dow Jones Internet, ranked third in the evaluation since the beginning of January, has relied on a number of well-known IT companies. It shows the development of the largest internet companies in the USA. Amazon, Facebook and Netflix are currently the most important positions.
Places 4 and 5 include ETFs covering the biotechnology and health sectors. The L&G Pharma Breakthrough grew by 16 percent, the L&G Healthcare Breakthrough by 15 percent. “The companies represented here are also among the winners of the crisis,” says Masarwah. The search for medication against the corona virus and the prospect of increasing spending in the healthcare sector are fueling investors’ imaginations. Highly weighted in the L&G Pharma Breakthrough are Mesoblast, a company specializing in regenerative active ingredients, and the vaccine manufacturer Emergent BioSolutions, which are working on the development of Covid-19 vaccines.
As exciting as special topics may be, investors should be aware of the special features of the products. “Anyone investing in a theme fund is making a bet against the market,” says Masarwah. “He speculates that an often very special topic will achieve the breakthrough and that it will become significantly more important on the market in the future.” That can work, but it is far from certain.
In addition, such funds are often only launched when the topic has gained a certain importance. In this case, the good prospects should already be reflected in the prices, the investment segment is no longer an insider tip.
Many themed ETFs are also relatively small. This increases the risk that a fund will be liquidated if there are no further cash inflows.
However, those who accept these restrictions can spice up their portfolio with a number of interesting topics at low cost.
Image sources: Melpomene / Shutterstock.com, zhaoliang70 / Shutterstock.com, Finanz Verlag