Investors can consider a theme-based exchange traded fund strategy to be better equipped to tackle thematic opportunities.
In the recent webcast, How To Make The Most Of Thematic MVPs, Christian Magoon, Founder and CEO, Amplify ETFs; and Mike Akins, CEO and Founding Partner, ETF Action, highlighted the explosion in thematic ETFs that cover niche market opportunities around the world. There are now 175 thematic ETFs with $136.4 billion in assets under management, compared to just 20 thematic ETFs with $2.1 billion in assets back in 2012.
Among the most popular thematic ETF plays, multi thematic approach makes up 22%, disruptive technology makes up 21%, sustainability makes up 17%, evolving consumer makes up 13%, industrial revolution makes up 13%, health innovation makes up 8%, and financial technology makes up 6%.
However, the problem with the growing thematic investment landscape is that there are too many options to choose from, and it is hard to narrow the search down, as investors will have to weigh their choices against arbitrary definition, subjective selection criteria, divergence in returns, and an ever-changing market landscape.
Akins argued that ETF Action could help investors better define the space. ETF Action is a financial technology and research company offering institutional-level data, industry leading tools, actionable insights, engaging model portfolios, and differentiated index strategies designed to empower investment professionals. With its core premise of viewing markets through the lens of ETFs, ETF Action harnesses the extraordinary growth and unparalleled transparency of ETFs to democratize market research via its user-friendly SaaS platform.
Specifically, the recently launched Amplify Thematic All-Stars ETF (MVPS) tracks the ETF All-Stars Thematic Composite Index, which was created and run by ETF Action. The benchmark seeks to identify “consensus” stocks within a set of themes, based on stocks’ prevalence of inclusion among U.S.-based thematic ETFs and the total market value invested within.
Akins explained that by using ETF Action’s proprietary classification system and ownership database, ETF holdings data is aggregated across each broad thematic segment to each company’s ownership-adjusted market value — OAMV is calculated by taking the total ownership value of each company in an ETF segment (qualifying ETFs are subject to a 10% influence cap) times the number of ETFs that own each company in the targeted segment. Each index represents 75% of the OAMV for each ETF segment. Qualifying companies are weighted by OAMV, subject to a 5% weighting cap. The indexes are rebalanced monthly.
The result is a portfolio that provides access to a diversified basket of companies most widely owned by thematic ETFs. The underlying index is built using an objective methodology that follows a transparent and repeatable rules-based process and can dynamically adapt to an ever-changing ETF landscape (new launches and closures) and investor sentiment (ETF flows).
MVPS uses ETF Action’s thematic classification system to define several segments: disruptive technology, evolving consumer, fintech, healthcare innovation, industrial revolution, sustainability, and a multi-theme category. The index defines a set of thematic ETFs within each segment, then seeks the consensus stocks — that is, the stocks most widely held by those ETFs, both in prevalence and market value held.
The ETF strategy is currently overweight positions innovative sub-sectors that are among the most popular thematic plays today, including big data, cloud computing, connectivity, next generation transportation, fintech, clean energy, blockchain, robotics & A.I., and online retail.
MVPS offers access to a diversified basket of global companies most widely owned by thematic ETFs, utilizes an objective methodology that follows a transparent rules-based process, and includes a portfolio of stocks that dynamically adapts to the ever-changing ETF landscape and investor sentiment. The ETF strategy could act as a one-stop, multi-thematic allocation, an alternative growth allocation, a replacement for innovation allocation, or an anchor theme alongside satellite high conviction themes.
“We believe this provides investors with an anchor allocation to thematic exposure within portfolios,” Magoon said.
Financial advisors who are interested in learning more about thematic investing strategies can watch the webcast here on demand.
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