Home etftrends.com ETF Themes That Dominated in Q1 2023

ETF Themes That Dominated in Q1 2023

As the first quarter comes to a close, clearly, there have been some thematic winners in terms of flows and investment performance.

Artificial Intelligence

AI-themed ETFs remain among the top recipients of investor flows this year.

SymbolETF NameYTD FlowYTD Return
AIQGlobal X Artificial Intelligence & Technology ETF$573,494,1867.3%
BOTZGlobal X Robotics & Artificial Intelligence ETF$79,280,72711.9%
ROBTFirst Trust Nasdaq Artificial Intelligence & Robotics ETF$70,553,850-2.8%
IGPTInvesco AI and Next Gen Software ETF$57,773,98015.5%
IRBOiShares Robotics and Artificial Intelligence ETF$53,593,2400.3%
WTAIWisdomTree Artificial Intelligence and Innovation Fund$45,693,9000.3%
THNQROBO Global Artificial Intelligence ETF$39,570,4387.1%
WISEThemes Generative Artificial Intelligence ETF$16,201,50014.6%

Source: VetfaFi ETF Database, 3/19/24

The top of the heap involved a little double-dipping from Global X, which captured over $500 million in inflows through its Global X Artificial Intelligence & Technology ETF (AIQ), its “pure-play” on the artificial intelligence theme. However, the Global X Robotics & Artificial Intelligence ETF (BOTZ) also added $80 million.

Many AI-themed ETFs also include other exposures, such as robotics and semiconductors, which offer different return profiles. Robotics is tied to industrial automation and manufacturing and is more sensitive to the economic cycle. Semiconductors are used in AI but, obviously, in many other applications as well. As always, it is important to know “what is under the hood.”

Although flows into AI ETFs have been positive, performance has been more muted for the group YTD after experiencing outsized returns last year. And clearly, there is quite a bit of dispersion in returns. From a holdings standpoint, this is not a homogenous group, as ETF sponsors implement different methodologies to model the growing opportunities in AI.

Infrastructure

The infrastructure theme was also a beneficiary of ETF flows this quarter. Global X’s U.S. Infrastructure Development ETF (PAVE) has pulled in more than $500 million in flows YTD, and the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) has also raised almost $70 million so far in 2024.

SymbolETF NameYTD FlowYTD Return
PAVEGlobal X U.S. Infrastructure Development ETF$524,103,58911.78%
GRIDFirst Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund$69,841,750 

7.50%

GIISPDR S&P Global Infrastructure ETF$23,840,880-1.34%
EMIFiShares Emerging Markets Infrastructure ETF$01.64%
RBLDFirst Trust Alerian US NextGen Infrastructure ETF$06.77%
INFRClearBridge Sustainable Infrastructure ETF$0-5.14%
GLIFAGF Global Infrastructure ETF$0-0.51%
RNEWVanEck Green Infrastructure ETF$0-10.18%
BLLDJPMorgan Sustainable Infrastructure ETF($13,740,552)-4.95%
TOLZProShares DJ Brookfield Global Infrastructure ETF($15,842,895)-0.48%
NFRAFlexShares STOXX Global Broad Infrastructure Index($69,408,868)0.79%
IFRAiShares U.S. Infrastructure ETF($155,926,220)3.77%

Source: VetfaFi ETF Database, 3/19/24

Infrastructure was also a big theme last year, with the passage of the $1 trillion Infrastructure Investment and Jobs Act, the $800 billion Inflation Reduction Act focused on clean energy infrastructure, and the $100 Million in FY 2023 funding under the CHIPS Act. YT  returns for these products have been reasonably good as well.

Not all infrastructure-themed ETSs have seen investor flows this year, however. Some have seen outflows or no flows at all. Investor flows have mostly gone to the best performers.

U.S Cannabis

Many investors wish to make an investment play on proposed U.S. cannabis reforms that would reclassify cannabis from a Schedule 1 drug. That has driven flows into domestic cannabis-themed ETFs. Investors anticipate that deschedulization could pave the way for banking reforms and federal legalization. However, it’s unclear what the timeline could be.

Over $200 million has flowed into the AdvisorShares Pure US Cannabis ETF (MSOS) and $48 million into its 2X leveraged version, the AdvisorShares MSOS 2X Daily ETF (MSOX). Ot r cannabis ETFs with U.S. multi-state operator (MSO) exposure like the Amplify US Alternative Harvest ETF (MJUS) and the Roundhill Cannabis ETF (WEED) have failed to gain new asset flows despite strong performance.

SymbolETF NameYTD FlowYTD Return
MSOSAdvisorShares Pure US Cannabis ETF$201,766,83529.81%
MSOXAdvisorShares MSOS 2x Daily ETF$48,459,50048.62%
WEEDRoundhill Cannabis ETF$2,424,68332.80%
YOLOAdvisorShares Pure Cannabis ETF$021.19%
CNBSAmplify Seymour Cannabis ETF$019.67%
LGLZSubversive Cannabis ETF$020.60%
TOKECambria Cannabis ETF(572,700)3.35%
MJAmplify Alternative Harvest ETF(3,441,900)11.15%
MJUSAmplify U.S. Alternative Harvest ETF(29,151,886)26.64%

Source: VetfaFi ETF Database, 3/19/24

The turnaround in cannabis stock performance may have come too late for some issuers, as this thematic area has seen multiple ETF closures.

Spot Bitcoin ETFs

I cannot talk about thematic ETF flows without mentioning the record asset flows into the new category of spot Bitcoin ETFs. YTD, these ETFs have gathered more than $25 billion in assets, shattering all records for new ETFs. It’s safe to say that there was some pent-up demand for these products.

SymbolETF NameYTD Flow
IBITIShares Bitcoin Trust Registered$13,039,727,210
FBTCFidelity Wise Origin Bitcoin Fund$7,326,988,682
ARKBARK 21Shares Bitcoin ETF$1,805,196,844
BITBBitwise Bitcoin ETF Trust$1,470,738,050
BITX2x Bitcoin Strategy ETF$827,414,070
HODLVanEck Bitcoin Trust$384,337,287
BRRRValkyrie Bitcoin Fund$366,667,641
BITOProShares Bitcoin Strategy ETF$304,739,299
EZBCFranklin Bitcoin ETF$174,588,150
BTCOInvesco Galaxy Bitcoin ETF$131,913,875
BTCWWisdomTree Bitcoin Fund$58,504,321

Source: VetfaFi ETF Database, 3/19/24

One thing I find interesting about the spot Bitcoin ETF product launches is that it has not come at the expense of the largest futures-based product, the ProShares Bitcoin Strategy ETF (BITO). BIT  has taken in an additional $300 million this year and now sits at $2.7 billion in assets under management. And unlike its spot competitors, ProShares garners an expense ratio of 95 basis points. Clearly, for some investors —  maybe those at brokerage wirehouses — Bitcoin futures ETFs are the favored Bitcoin exposure option.

Overall, thematic ETFs have been an important part of the asset allocation mix in the first quarter of the year, driven by categories such as artificial intelligence, infrastructure, U.S. cannabis, and bitcoin, as investors demand targeted exposure to these disruptive investment themes.

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

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