What Are Thematic ETFs?
Introduction
Investing has evolved far beyond just picking individual stocks or broad market index funds. One of the most exciting developments in recent years has been the rise of thematic exchange-traded funds (ETFs). These funds allow investors to align their portfolios with long-term trends, disruptive innovations, and themes that reflect their personal beliefs about the future of the economy, technology, or society.
Understanding Thematic ETFs
A thematic ETF is an exchange-traded fund that invests in companies tied to a specific theme or trend, rather than focusing on a region (e.g., Australian shares) or a broad sector (e.g., healthcare). These themes are often based on long-term structural changes in the economy or society.
For example, a thematic ETF might focus on:
Clean energy (solar, wind, battery technology)
Artificial intelligence and robotics
Cybersecurity
Aging populations and healthcare innovation
Space exploration
Instead of holding a wide mix of unrelated companies, a thematic ETF narrows its scope to businesses directly connected to the chosen theme.
Think of a thematic ETF like watching Netflix, you don’t just watch one show - you get access to a whole collection built around a theme. For example, you might click on the “Sci-Fi & Fantasy” category. Inside, there’s Stranger Things, Black Mirror, The Witcher, and a bunch of other titles that all fit the vibe.
That’s what a thematic ETF does with investing. Instead of putting your money into just one company (like buying the stock of Stranger Things only), it groups together a bunch of companies tied to the same trend whether it’s streaming, clean energy, or AI.
So buying a thematic ETF is like saying: “I don’t just want one show, I want the whole category because I believe this theme is going to stay popular.”
How Thematic ETFs Work
Like all ETFs, thematic ETFs are traded on stock exchanges just like individual stocks. Investors can buy and sell shares throughout the trading day, making them liquid and flexible.
The fund manager selects companies based on the theme, which could include:
Pure-play companies are businesses that are primarily focused on the theme itself. Their main products, services, and revenue streams come directly from that trend.
Supporting players are businesses that may not be fully centered on the theme but still benefit from it in important ways. They provide the tools, infrastructure, or complementary services that help the theme grow.
For example, the BetaShares Global Cybersecurity ETF (ASX: HACK) includes leading cybersecurity firms like CrowdStrike and Palo Alto Networks, but also exposure to broader tech providers that support secure digital ecosystems.
Benefits of Thematic ETFs
Targeted Exposure: Investors can focus on specific areas they believe will grow in the future.
Diversification Within a Theme: Unlike picking a single stock, thematic ETFs spread risk across multiple companies within the theme.
Accessibility: They provide exposure to complex or niche sectors without requiring deep expertise.
Alignment with Personal Values: Many investors like backing themes such as sustainability, innovation, or diversity.
Risks to Keep in Mind
While thematic ETFs can be exciting, they come with unique risks:
Concentration Risk: Because they zoom in on one theme, you don’t get the same spread of companies that a broad index fund gives you.
Volatility: New or fast-changing themes, like space exploration or streaming, can rise and fall in value very quickly.
Hype Risk: Some themes get a lot of attention for a while but may not last in the long run.
Higher Fees: Thematic ETFs often charge slightly more in fees than traditional ETFs.
How to Evaluate a Thematic ETF
Not all thematic ETFs are created equal. You might find it useful if you add a short checklist on what to look for, such as:
Clarity of Theme: Is the theme well-defined and not overly broad?
Holdings Quality: Are the underlying companies true innovators, or just tangentially related?
Geographic Exposure: Some themes may be more prominent outside the U.S. (e.g., EV supply chains in Asia).
Fund Size and Liquidity: Larger ETFs with higher trading volume are usually more stable.
Expense Ratio: Compare costs across similar funds.
Here is a guide on how to select a thematic ETF.
Who Should Consider Thematic ETFs?
Thematic ETFs may suit investors who:
Want to add growth potential through emerging trends.
Have high conviction about certain industries or innovations.
Are looking to complement a core portfolio of broad index funds with more targeted bets.
However, they may not be ideal as the foundation of a portfolio - rather, they work best as a satellite holding to add flavor and future-focused exposure.
How inaam Helps
At inaam, we use the concept of thematic ETFs as a way to align investing with what matters most to you. Instead of just looking at numbers, we start with your values whether that’s sustainability, technology and healthcare innovation. From there, we match those values to themes and curate a custom micro-portfolio for you - consider it your personal thematic ETF generator!
Our goal is to make it easy for you to see how your money can follow the future you believe in. By breaking down each theme in simple terms and comparing investments side by side, inaam helps you build a portfolio that isn’t just about returns, but also about reflecting who you are and what you stand for.
Final Thoughts
Thematic ETFs are an exciting way to invest in tomorrow’s big ideas today. From renewable energy to artificial intelligence, they offer investors a chance to align their portfolios with innovation and long-term global shifts.
Still, like all investments, it’s important to balance enthusiasm with caution. Do your research, understand the risks, and consider how a thematic ETF fits into your broader financial strategy.