ETF investing can be tricky, especially in a volatile market. Thematic ETFs — a portfolio of stocks that share a common theme — can be a good investment strategy to help diversify your portfolio and invest in hot sectors in the market, such as renewable energy and EVs.

The Ups and Downs of Thematic ETF Investing

ETFs account for around $5 trillion dollars in market trading in the US alone. With that amount of cash flow, it's no surprise they're getting more attention from investors. Taking a thematic approach to ETFs can be a great way to invest in a basket of securities that span multiple industries and sectors, but it can also be subject to greater amounts of volatility depending on how narrow the thematic niche is. It's also subject to the current market trend for the given theme. This means that you need to follow the theme's sectors closely in order to monitor changes and volatility.

Betting on Future Trends

The cornerstone of thematic investing is finding a hot trend poised to take off in the market. For example, in the height of the pandemic e-commerce stocks boomed due to the lock-downs. Another hot sector is the growing demand for electric vehicles and green energy. Although some of these sectors may be worth investing in long term, they are subject to the whims of the market, as well as outside forces, such as pandemics and government legislation. Always remember to do your due diligence and study trends to ensure you are betting on a trend that has potential for market growth in the sectors and industries you are investing in.