Best Thematic ETFs for 2023

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Best Thematic ETFs

The latest craze over artificial intelligence or AI for short, spurred on by the introduction of ChatGPT in late 2022, has seen many AI/Robotics-related ETFs outperforming the broader market in 2023.

According to data from Stock Rover, the best-performing equity sectors on a YTD 2023 basis, using Sector ETFs as a gauge, are 1) Technology, 2) Consumer Cyclical, and 3) Communications.

On the other extreme, 1) Utilities, 2) Consumer Defensive, and 3) Healthcare are the 3 worst performing sectors, thus far in 2023.

Many interesting Thematic ETFs can be found in the technology sector. Let us take a closer look at which are some of the Best Thematic ETFs for 2023 that an investor can partake in.

Do note that many technology-related thematic ETFs can be rather volatile in nature, as evidenced by their strong performance back in 2021, which was swiftly reversed in 2022 as investors skewed towards “value” counters amid a “risk-off” environment last year.

Looking at the strong YTD performances of these tech-related thematic ETFs, are we back to a risk-on mode? Is this the start of a new bull market?

No one can say with any certainty, particularly when one’s investment horizon is short.

That is why when investing in these Thematic ETFs, one should engage a longer-term investment horizon for their structural growth theme to “play out”. This can be done through a dollar-cost averaging strategy.

For investors who are interested, I have done up an ETF Video Tutorial Guide on identifying some of the best ETFs for a retail investor to participate in.

I will now take a look at the Top 3 ETFs in each of the best-performing sectors (technology, consumer cyclical, and communications)

Additional Reading: Thematic ETFs partaking in the hottest trends

Best Performing Technology ETFs in 2023

According to data from Stock Rover, the Top 3 Best Performing Technology ETFs in 2023 are (performance as of 20 Feb 2023):

1. ARK Next Generation Internet ETF (ARKW) (+37.7%)
2. Sofi Web 3 ETF (TWEB) (+32.2%)
3. Simplify Volt RoboCar Disruption and Tech ETF (VCAR) (+31.9% YTD)

Note that some of these ETFs, such as ARKW, are not exposed to any one particular theme, and is an actively-managed ETFs that invests in a myriad of companies that falls under their category of “next generation” companies.

Best Performing Consumer Cyclical ETFs in 2023

According to data from Stock Rover, the Top 3 Best Performing Consumer Cyclical ETFs in 2023 are (performance as of 20 Feb 2023):

1. ProShares Online Retail ETF (ONLN) (+21.1%)
2. First Trust S-Network Future Vehicles & Technology ETF (CARZ) (+20.9%)
3. Amplify Online Retail ETF (IBUY) (+19.7%)

All of the above are passively managed index exchange-traded funds (ETFs) unlike ARKW (actively managed), exposed to a particular theme. For example, CARZ invests in companies that are part of the electric vehicle (EV) ecosystem. Its top holding is Tesla (TSLA).

Best Performing Communications ETFs in 2023

According to data from Stock Rover, the Top 3 Best Performing Communications ETFs in 2023 are (performance as of 20 Feb 2023):

1. Communication Services Select Sector SPDR ETF (XLC) (+15.3%)
2. Fidelity MSCI Communication Services Index ETF (FCOM) (+14.9%)
3. Vanguard Communication Services index Fund ETF (VOX) (+14.7%)

The above-highlighted ETFs are not exactly thematic ETFs but are more broad-based sector ETFs issued by the various providers (fidelity, SPDR, Vanguard etc).

An example of a thematic ETF in this category is the Defiance 5G Next Gen Connectivity ETF (FIVG) which mainly focuses on stocks exposed to the 5G theme. Most of the stocks that this ETF invests in, are, however, Technology-related stocks vs. communication stocks.

Best Performing Thematic ETFs in 2023

If one is to strictly look at thematic ETFs that are passively managed (index fund) and exposed to a single identified theme, then the 5 best-performing themes and their relevant thematic ETFs are:

1. Web 3: Sofi Web 3 ETF (TWEB) (+26.8%)
2. Semiconductor: SPDR S&P Semiconductor ETF (XSD) (+21.1%)
3. Artificial Intelligence: WisdomTree Artificial Intelligence and Innovation ETF (WTAI) (+21.0%)
4. Metaverse: Roundhill Ball Metaverse ETF (METV) (+20.6%)
5. Online Retail: ProShares Online Retail ETF (ONLN) (+20.3%)

Additional Reading: Best Performing ETFs (2023)

Most Consistent Thematic ETFs

There is a small handful of ETFs that have consistently outperformed the broader S&P 500 index over both a short, medium and long duration. The table below highlights the 3 thematic ETFs that I have screened for consistent outperformance.

For investors looking at resiliency, you might want to take a closer look at these 3 thematic ETFs.

Notice that XSD has again been featured in this list and has one of the strongest outperformance records vs. the S&P 500 over a 10 years horizon.

I have written about the semiconductor industry on numerous occasions and highlighted that this is one of the strongest-performing industries in YTD 2023.

Additional Reading: ASML. Is it too late to buy this top semiconductor equipment manufacturer?

How I am looking to partake in structural growth themes using Thematic ETFs.

I have got a 3-steps passive investing strategy to partake in the long-term growth potential of structural growth themes using thematic ETFs such as those highlighted in this article.

Step 1: Identify the structural themes and their relevant thematic ETFs

Step 2: Create a portfolio around those thematic ETFs

Step 3: Engage a dollar-cost average approach to invest regularly into these thematic ETFs for the long term

Key areas to note:

• These are investments taken with a longer-term horizon and are not meant to be opportunistic trading opportunities
• Hence, I am not concerned about short-term price declines in these thematic ETFs. By engaging a dollar-cost average approach, I seek to capitalize on the price weakness seen in the thematic ETFs in my portfolio.
• Investing in ETFs comes with annual recurring costs (expense ratio) that needs to be accounted for

I am currently vested in these 5 thematic ETFs:

1. VanEck Semiconductor ETF (SMH)
2. iShares Global Clean Energy (ICLN)
3. iShares Self-Driving EV and Tech (IDRV)
4. Global X Robotics & AI (BOTZ)
5. Roundhill Ball Metaverse (METV)

I used the Syfe Robo Advisor to create my own unique portfolio comprising of these 5 thematic ETFs and subsequently dollar cost average into them on a monthly basis.

Do note that investing in ETFs in this format comes with additional costs, that is the recurring platform costs charged by Syfe (in addition to the expense ratio). However, this is a quick and easy method for investors to get started with a small start-up capital, one which can be automated.

For those who are interested to learn more about the various ETFs that you can invest in (SG ETFs, US ETFs, UCITS ETFs), do check out my free video tutorial guide.