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Thematic ETFs surge as investors target niche markets

4 minute read

Thematic ETFs are rapidly gaining popularity among investors seeking exposure to niche areas of the market.

In a recent episode of the Relative Return podcast, Manny Damianakis, head of sales at Global X, said thematic ETFs provide exposure to specific sectors like technology, crypto, and lithium, catering to investors’ desire for targeted investment strategies.

He attributed the steadily growing interest in thematic ETFs to the increasing role of technology and the stellar performance of certain thematic sectors, such as artificial intelligence (AI) which has become a global sensation catapulting the Magnificent 7 into the stratosphere.

To capitalise on this trend, in April, Global X announced it is launching the Global X Artificial Intelligence ETF (ASX: GXAI) on the ASX, offering Australian investors exposure to innovation and growth in AI-related companies.

GXAI, which will be the first dedicated AI ETF launched in Australia, tracks the Indxx Artificial Intelligence & Big Data Index.

Already, the GXAI is seeing “significant traction”, said Damianakis.

“All the research tells us we are at the beginning of something quite profound in terms of where markets and where our economy and innovation are going,” he noted.

Damianakis also flagged crypto assets as attracting increasing investor interest.

Global X offers investors exposure to both bitcoin and Ethereum via its Global X 21Shares Bitcoin ETF and Global X 21Shares Ethereum ETF, both of which are listed on the Cboe.

While Damianakis anticipates further growth in the crypto ETF space, he remains sceptical about crypto’s path to mainstream adoption.

“I wouldn’t see that happening because we haven’t seen that with other alternative assets either.

“I think you will see continued growth in the space, no doubt about it. There’s definitely more interest and more understanding and there’s more with the ETFs coming in that makes them more accessible.”

Ultimately, Damianakis emphasised the importance of “lateral thinking” and diversification beyond the tech-heavy sectors, advocating for a balanced investment approach.

Energy transition left behind

In April, new data from Global X revealed that while thematic ETFs are being favoured by investors, those tracking the energy transition are being left behind.

While the energy transition dominated thematic ETF inflows in 2023, according to data from Global X, they fell out of favour with Australian investors in 2024 to become the poorest performers among their thematic peers in the year to 31 March.

At the time, Marc Jocum, Global X ETFs product and investment strategist, said outflows in 2024 could have less to do with energy transition ETFs themselves, and more to do with the increasing popularity of areas such as technology, semiconductors, cyber security, and artificial intelligence.

Moreover, he told InvestorDaily, the bulk of the ETF flows are being allocated to low-cost vanilla ETFs this year, as the core of client portfolios.

“To start the year, we have seen a ‘risk-on’ sentiment of money being allocated to broadly diversified global share ETFs and technology themes. Investors appear to be prioritising immediate profits over future ones, particularly those projected for net-zero emissions by 2050.”

To hear more from Damianakis, click here.

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.