Home etftrends.com Disruptive Tech Theme of the Week: Top Thematic ETF Flows 2023

Disruptive Tech Theme of the Week: Top Thematic ETF Flows 2023

To close out the year, I thought it would be interesting to see which thematic categories experienced the most inflows in 2023, demonstrating proverbially “where the puck was going.” This data, sourced from Bloomberg and VettaFi’s internal data, is interesting because it does not necessarily align with performance. There is some overlap with my prior analysis of Top Themes of 2023, but there are also some new thematic ETF categories to highlight regarding net inflows.

1. Infrastructure

The top theme regarding inflows in 2023 was not AI or crypto/blockchain, but infrastructure. This thematic category was most likely the beneficiary of investors trying to position their portfolios to benefit from the infrastructure spending being funded by various acts of legislation such as the Infrastructure Investment and Jobs Act (ILJA), which represents the most direct investment in U.S. infrastructure, and the Inflation Reduction Act (IRA), which is focused on green infrastructure solutions.

ETFs that experienced large inflows in 2023 as beneficiaries of this trend were the Global X US Infrastructure Development ETF (PAVE), which experienced $931 million in YTD net inflows; the iShares US Infrastructure ETF (IFRA), tallying $279 million in YTD net inflows; and — on the energy infrastructure side — the First Trust Nasdaq Clean Edge Smart GRID Infrastructure ETF (GRID), which added $92 million in asset inflows this year.

2. Robotics

The next top theme in terms of inflows this year was robotics. While some of the ETFs also benefited from their hybrid exposure to artificial intelligence, for the purpose of this report, I am carving out robotics as its own category as there were other thematic underpinnings behind robotic inflows beyond just AI. Rising labor costs and labor shortages, coupled with the surge in e-commerce and logistics demand, are examples of trends favoring this theme. You can read VettaFi’s Senior Research Analyst Zeno Mercer’s more detailed analysis on this topic in conjunction with the ROBO Global Robotics and Automation Index (ROBO) on VettaFi’s Disruptive Technology Channel.

Robotic ETFs that have experienced positive inflows YTD include the GlobalX Robotics & Artificial Intelligence ETF (BOTZ) with inflows of $659 million YTD, the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) with $268 million in YTD inflows, and the First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT) with $256 million in net inflows.

3. Artificial Intelligence

As mentioned, several ETFs that are seeing positive inflows in the robotics category also have exposure to AI. Artificial intelligence was one of the top themes in 2023 regarding hype and investment performance. That would be thanks to the introduction of Chat GPT. It is no surprise that it was the recipient of investor flows as well.

Other ETFs not yet mentioned with a targeted focus on AI that received sizable investor flows this year were the Global X Artificial Intelligence & Technology ETF (AIQ) with $615 million in net inflows, the WisdomTree Artificial Intelligence and Innovation Fund (WTAI) with net inflows of $177 million, and the ROBO Global Artificial Intelligence ETF (THNQ) which added $77 million in flows.

4. Natural Resources

One thematic category of ETFs that drew in a surprising amount of net inflows in 2023 was natural resources. My guess is that investors expected these companies to benefit in the high inflation environment. They included exposure to metals, agricultural goods, lumber, and energy resources like oil and gas.

The two largest ETFs in the category, the SPDR S&P Global Natural Resources ETF (GNR) and the FlexShares Morningstar Global Upstream Natural Resource ETF (GUNR) saw net inflows of $458 million and $135 million, respectively, despite lagging in performance relative to the market. GNR is up 1.35% YTD, and GUNR is down 3.96% for the year.

The better performance play in the category has been the Amplify Natural Resource Dividend Income ETF (NDIV), which is up 7.03% YTD. As outlined in my recent What Makes the Ticker Tick report on the underlying index, its approach is to concentrate and weight the portfolio based on dividend yield, resulting in much better relative performance YTD. Despite smaller positive inflows of only $6.7 million this year on an absolute basis, the ETF did grow 25% in terms of percentage inflows off its smaller asset base.

5. US Cannabis

Despite negative YTD performance, domestic plays on cannabis that held multi-state operators (MSOS) saw inflows YTD. There were several positive developments this year for the US cannabis industry kicked off by the Drug Enforcement Agency’s (DEA) recommendation to declassify cannabis from a Schedule I drug to Schedule III.

There is also the potential passage of the SAFE Banking Act of 2023, which would provide the cannabis industry access to traditional banking sources. That legislation is still pending with the Senate Committee on Banking but could be approved next year. And then, of course, there is the prospect for federal legalization of cannabis in the U.S.  Federal legalization of cannabis is almost inevitable, according to policy analysts at TD Cowen. Medical marijuana is now legal in 38 states, and 70% of Americans are in favor of legalization, according to a recent Gallup poll.

Some of the US-focused cannabis ETFs seeing inflows this year were the AdvisorShares Pure US Cannabis ETF (MSOS) and the ETFMG US Alternative Harvest ETF (MJUS), which experienced $162 million and $70 million of net respective inflows in 2023. These ETFs can provide exposure to MSOS despite their lack of federal legality through the use of derivative SWAP contracts.

It should be noted that Amplify ETFs agreed to acquire ETFMG’s ETF assets in June, so MSUS is likely to move under the Amplify umbrella next year, pending shareholder approvals. The move will bring together MJUS and the ETFMG Alternative Harvest ETF (MJ), which are both passively managed, with the Amplify Seymour Cannabis ETF (CNBS), which is actively managed by CNBC’s Tim Seymour.

Other Notable Thematic Mentions

While the aggregate category of crypto and blockchain did not make the cut in terms of thematic inflows, the one exception was the Amplify Transformational Data Sharing ETF (BLOK), which has seen net YTD inflows of $227 million, solidifying its position as the largest ETF in the blockchain ETF category.

Another thematic ETF success story was the iShares MSCI USA ESG Select ETF (SUSA), which had a whopping $1.3 billion in YTD inflows despite perceived ESG headwinds.

In a category almost all their own, YieldMax’s option income ETFs captured massive investor inflows with their option-enhanced, sky-high yields. YieldMax now has 18 listed ETFs with YTD asset flows totaling $1.65 billion. Its largest ETF is the YieldMax TSLA Option Income Strategy ETF (TSLY) with $839 million in assets.

Thematic ETFs by the Numbers

This year’s success of the thematic categories belies the fact that there were $926 million in thematic ETF net outflows. Again, these thematic outflows did not always align with performance results. While the Global X Lithium & Battery Tech ETF (LIT) experienced $750 million in net outflows this year coupled with a negative return of 16.1%, the ARK Innovation ETF (ARKK) delivered stellar performance results YTD, up 63.5%, but saw $506 million in net outflows.

Among the 256 Thematic ETFs being tracked in Bloomberg’s US ETF universe, only 100, or 39%, saw positive net inflows. That still added to over $6.6 billion in positive Thematic ETF net asset flows.

In summary, Thematic ETFs are alive and well. They are gathering flows, and still providing investors with targeted exposure to bespoke investment themes.

For more news, information, and strategy, visit the Disruptive Technology Channel.

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