Thematic ETFs & Active Fixed Income Gain Momentum in 2026

Core Insights - Thematic ETFs and active fixed income are gaining renewed interest as investors seek alternatives to the dominance of the Magnificent Seven stocks [1][2] Thematic ETFs - Advisors are reevaluating portfolios to address gaps in exposure to companies leading significant market themes such as electrification and energy transition [2][3] - The ALPS Electrification Infrastructure ETF (ELFY) adopts a "picks and shovels" approach, focusing on downstream infrastructure rather than AI tech giants, investing in pipeline companies, utilities, and industrial firms benefiting from rising electricity demand [4] - Utilities and energy sectors represent a small portion of traditional portfolios, with utilities at 2% and energy at 3% of the S&P 500, despite their critical roles in electricity demand growth [5] Active Management in Fixed Income - The ALPS Smith Core Plus Bond ETF (SMTH) has surpassed $2 billion in assets in under two years, as investors shift from cash equivalents to longer-duration strategies amid expected rate cuts [6] - Active fixed income managers have consistently outperformed benchmarks, unlike large-cap equity counterparts, as the aggregate bond index serves primarily as a measurement tool rather than an investable option [7] Market Concentration and Diversification Strategies - Looking towards 2026, there are concerns about the market's concentration around the Magnificent Seven, which collectively account for over 30% of the S&P 500 [8] - Suggested diversification strategies include international exposure, small- and mid-cap allocations, value-oriented approaches, and quality strategies to mitigate concentration risk [9]