E.T.F.s Try to Lure Investors Into Ever Narrower Niches


The business and investment prospects associated with themes like Big Data, artificial intelligence, privacy and cyberthreats, the report said, will be helped by a “techceleration” resulting from the introduction of so-called 5G technology featuring much faster data transmission rates. The rollout of 5G “will bring about the fastest transformation in human history,” Mr. Israel predicted. The reduced time it will take to transmit data will help the spread of all sorts of technologies, like gaming or self-driving cars, he said.

Mr. Israel’s analysis and outlook are plausible — for the world as it is today and for various technologies as they have developed so far. As for five years from now, who knows? Change, often radical and unforeseeable, is a hallmark of the sector, making most forecasts speculative at best. That is one of the main complaints that investment advisers have with thematic E.T.F.s.

“We’ve been around long enough to see a lot of the ‘next big thing,’ said Leon LaBrecque, chief executive of LJPR Financial Advisors in Troy, Mich. “Remember Blockbuster or Boston Chicken? Anyone remember the first search engine? New tech becomes old tech.”

For investors interested in taking a shot with thematic E.T.F.s, advisers suggest using risk capital, and then only small amounts of it.

Mr. Masucci views thematic E.T.F.s as superior alternatives to buying individual stocks. These E.T.F.s “are a tax efficient, liquid, transparent way to give that exposure without relying on advisers’ ability to pick stocks,” he said.

But Mr. Cordaro pointed to a conundrum that anyone contemplating investing in thematic E.T.F.s faces: “Because they can be riskier, you wouldn’t want them to be too much of your portfolio,” no more than 5 percent, he said. “The paradox is that’s not going to move the needle that much. You’re not going to make much money on it.”

If you still want to try to move the needle, he advises doing it with funds that emphasize smaller, younger businesses that are pure plays in a particular niche and that don’t fill their portfolios with established companies that only dabble in fledgling technology.



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