Disruptive Theme of the Week: Thematics Are Back! Should You Go With the Flow?

Core Insights - Thematic ETFs are designed to capture long-term investment themes that are not fully represented by traditional market or sector approaches, utilizing quantifiable measures like revenue and market share to identify key players [1] - Thematic investing remains popular as investors seek exposure to emerging trends, with global flows into thematic ETFs exceeding $21 billion year-to-date, marking the strongest inflows since 2021 [2] Thematic Categories Defense - The Select STOXX Europe Aerospace & Defense ETF (EUAD) leads the U.S. defense category with a year-to-date return of 84.8%, followed closely by the Global X Defense Tech ETF (SHLD) at 82.5% [4] - Notable ETFs in the defense sector include: - EUAD: Total Assets $1.24 billion, YTD Return 84.82%, Expense Ratio 0.50% [5] - SHLD: Total Assets $5.33 billion, YTD Return 82.46%, Expense Ratio 0.50% [5] - NATO: Total Assets $62.78 million, YTD Return 51.59%, Expense Ratio 0.35% [5] Artificial Intelligence - The Roundhill Generative AI & Technology ETF (CHAT) is the top performer in the AI-themed ETFs with a YTD return of 53.6%, nearing $1 billion in assets [6] - Other significant AI ETFs include: - CHAT: Total Assets $959.31 million, YTD Return 53.61%, Expense Ratio 0.75% [7] - AIS: Total Assets $74.82 million, YTD Return 52.29%, Expense Ratio 0.75% [7] Infrastructure - The iShares Emerging Markets Infrastructure ETF (EMIF) leads the infrastructure category with a YTD return of 23.6% [8] - Key infrastructure ETFs include: - EMIF: Total Assets $7.61 million, YTD Return 23.63%, Expense Ratio 0.60% [8] - INFR: Total Assets $10.75 million, YTD Return 21.36%, Expense Ratio 0.59% [8] Fund Flows and Investment Sentiment - Positive fund flows indicate favorable sentiment towards specific investment categories, with defense, AI, and infrastructure ETFs benefiting from significant inflows this year [9] - A study suggests that real-time flow data can enhance investment returns, emphasizing the importance of due diligence in ETF selection [10]