Biggest potential ETF theme - Innovation

Innovation is a potentially lucrative theme that can be accessed through the use of ETFs.

By Rony Abboud · October 13, 2022

Biggest potential ETF theme - Innovation

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A fortune has been made from investing in up-and-coming technologies and developments across the world. For example, when oil was first discovered as a source of energy, investors who got in at the early stages were able to support a growing industry while also creating substantial wealth for themselves. This has happened again and again, with tech companies, and now potentially with green-energy companies.

That being said, these investments come with substantial risk. Ask the investor who invested in oil right before a commodity price crash, or the investor who invested in technology companies immediately before the dot-com bubble.

The diversification benefits of the ETF wrapper offer a potential way to minimize the firm-specific risks that come with investing in individual companies. Investors can access a broader base of innovative companies, which will reduce the overall volatility of returns, while still retaining exposure to the growth upside of investing in innovative industries.

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What does innovation encompass?

Innovation, as an investment theme, is exceptionally broad, especially when taking account ongoing technological developments. Themes surround the future of industries, the future of health, and the future consumer. Some of the largest themes for innovation include:

Technology: Adoption of artificial intelligence, next-generation internet, the metaverse, virtual reality, etc.

Healthcare: Ground-breaking healthcare advancements to cure and prevent physical and mental ailments

Clean Energy: The transition away from fossil fuels and the technology required to bridge the gap from the growing demand for energy globally and a shifting of the energy supply stack

Financials: Fin-tech development, blockchain and the potential for decentralized currencies

There are also global themes that investors may wish to gain exposure to, for example:

Technological breakthroughs
Changing demographics
Greater urbanization
Climate change
Growing wealth of developing economies

Innovation ETFs: Accessing the investment opportunity

Spotting trends - and capitalizing on them - is what investing is all about. Getting ahead of large and secular trends globally is an effective way to not only grow capital but protect it from being invested in dying industries or technologies. For this reason, it is very important to be aware of different budding technologies and trends.

ETFs offer investors a simple and relatively cost-effective way to access the ever-growing array of themes in the innovation space, as well as providing the transparency, liquidity and diversification benefits inherent in the fund structure. These themes can be easily screened by using ETF Central’s ETF Screener (click here).

Examples of innovation ETFs

As mentioned above, while there are a plethora of different options available today, it is essential that investors understand the significantly higher levels of risk associated with emerging themes and undertake the necessary research to identify which trends have viability in the longer term and whether the investment is right for their personal circumstances.

Some examples of innovation ETFs are as follows: