Thematic tech ETF investing may have selective use case, experts say
Investing around specific themes such as AI may carry more risk in a long-term portfolio. Here's how experts suggest using the buzzy exchange-traded funds.
Troov
Even with recent rotation away from megacap tech stocks, there may still be a case for investing in thematic tech exchange-traded funds.
Roundhill Investments runs the Roundhill Generative AI & Technology ETF (CHAT), which is up 13.8% year to date as of Friday's market close. But despite recent volatility in the group, the firm's CEO Dave Mazza thinks the investment thesis is still intact.
"These names are still performing well," he told CNBC's "ETF Edge" this week. "Certainly, we saw a wobble in July and August. If you look over the last month, performance has generally been in line with the market."
The fund has managed to gain 2.1% over the past month, short of the S&P 500's 3.5% rise during the same period.
Its three largest positions are Nvidia, Microsoft and Alphabet, according to FactSet, but it contains 52 holdings overall. Pointing to some of CHAT's under-the-radar artificial intelligence plays, Mazza waived off concerns that thematic ETFs may be too narrow in scope.
"There are companies like Dell in the portfolio and others, ServiceNow and Salesforce, who are using AI and integrating AI," he said.
'Right tools for the right job'
Meanwhile, financial futurist Dave Nadig suggests thematic ETFs may have a narrower use case, better suited to traders over long-term investors.
"This is a question of having the right tools for the right job," Nadig said in the same interview. "The average holding period on thematics is weeks, not years, so people use these as ways of expressing short-term opinions."
Still, funds such as Roundhill's may come at a relatively steep cost. The actively managed CHAT ETF has a management fee of 0.75%.
Nadig went on to suggest the higher fees accompanying thematic funds may be worth the price.
"Having an active manager overlay on it makes a lot of sense, because this is fast moving technology," he added.
Roundhill's Mazza also sees the benefit in an active approach.
"For investors who are looking to either do more or have the potential to outperform — not a guarantee that any thematic is — it's worth paying up for either credible active management or a means to identify a particular outcome in that space," Mazza said. "When I think about it from that perspective, many thematic ETFs are actually less expensive than traditional active management and mutual fund form."
