Navigating Themes With a Disciplined Rotation

Core Insights - Thematic ETFs have shown strong momentum in early 2026, adding $4 billion in January after a $23 billion increase in 2025 [1] - The VettaFi Thematic Rotation Index provides a disciplined approach to thematic investing, addressing challenges like timing and overlapping exposures [1] Thematic Investment Strategy - VettaFi's index encompasses a multi-sector approach, including trends in energy, financials, materials, and healthcare, beyond just technology [1] - The index is rebalanced quarterly, employing an equal-weighting strategy and capping individual company exposure at 8% to mitigate concentration risk [1] Sector Performance - The late December rebalance identified seven dominant sub-themes: Uranium, Semiconductors, Quantum Computing, GLP-1 Weight Loss Drug Manufacturers, E-Sports & Interactive Gaming, Defense, and Consumer Fintech [1] - Previously popular themes like Cloud Computing and Travel & Leisure have seen a decline in momentum [1] Benchmark Overlap and Returns - The VettaFi index has a low overlap with major benchmarks, at 21% with the S&P 500 and 23% with the Nasdaq 100, including 185 companies with a median market capitalization of $18 billion [1] - The index achieved a 24% return over the 12 months ending January 2026, outperforming the Nasdaq 100 (20%) and S&P 500 (16%) [1] Geographic Diversification - The index primarily focuses on the U.S. market (60%) but also includes companies from Australia, Canada, China, Denmark, and Japan, providing necessary cross-border diversification [1]