Why thematic ETFs are the best thing since Venture Capital.
We would all like to invest a little, to make very much. Think buying shares in Google or Facebook before they went public and increased in value more than a thousand times. It is what makes Venture Capital so popular, and everyone wants to find the next unicorn. As we all know, the problem is that for every single one we get right, there are a hundred which we get wrong. Who knew Beta 2000 would not become the dominant video cassette format and whatever happened to car phones anyway?
So, we plough our money into funds, managed by people that allegedly know their stuff, in an effort to skew the numbers in our favour. Nothing wrong with that, except our money is tied up forever and the fees are a real buzz kill. Never fear, the ingenuity of our glorious financial system is here, and we can now play this game on our own rules. There are plenty of publicly listed companies to get excited about and huge increases in price are not just limited to private companies. You could have bought Tesla in January 2020 and made 800% or Amazon in 2001 and earned 21,211%.
Some stocks are smaller than others, and even more are less liquid than the rest, but the point is this: when buying listed shares, we can get in and out whenever we want and there are no 2% management and 20% carry fees for the next ten years. What makes stock-picking different to taking over the next big thing? Not much, and finding the needle in the haystack still applies. However, so called thematic ETFs may just be what the doctor ordered.
We can get exposure to things like clean energy, battery makers, AI, robotics, innovative health care and even rare earth. Pick an idea, and there is probably an ETF out there, with a plethora of the best companies all put together as defined by a new trend or subsector of an industry. We also don’t have to worry about cutting our losses as there is a survivor’s bias. In other words, the bad ones get kicked out of the index, whereas the ones doing well go up in weight. Best of all, we keep all the upside. So go ahead, pick a theme, and see if you get lucky. With real rates below zero, there really is no reason not to do it.