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Why advisors should take a measured approach to thematic investing

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“But there’s also some risk inherent because a lot of these sectors are new,” he says. “They’re composed of a disparate group of companies, some of which are going to survive, some of which are profitable, some of which are not. And because they are disruptive technologies, they’re going to also be prone to volatility – and sometimes volatility is the enemy of successful and prudent investment. Make sure you’re measured in how you allocate to these strategies, and don’t get carried away in your enthusiasm by the impressive headlines and performance that some of these strategies can put up because you can give it back.”  

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That said, Cooke says it’s hard not to be excited by the innovation taking place right now. He compares the emergence of blockchain as being to Bitcoin what the internet was to email. Blockchain continues to disrupt and democratize the global economy, although it remains volatile. Blockchain’s most popular byproduct, cryptocurrency, is at the forefront of thematic ETFs – just this year, Purpose Investments launched the world’s first Bitcoin ETF, Horizons ETFs began offering an inverse Bitcoin ETF, and Evolve ETFs recently launched Canada’s first multi-crypto ETF.  

“Cryptocurrency ETFs have drawn a good cross-section of different investor segments,” Cooke says. “Interestingly, some are drawing institutional investors, both domestic and offshore financial advisors, and, of course, DIY investors. All these investors are seeing the benefits and versatility of the ETF structure.”  

Beyond “flashy” ETFs like Bitcoin and blockchain, Cooke sees innovation “even in something as seemingly vanilla as index design,” which he believes has incrementally improved the investor experience. The ability of ETFs to incorporate emergent asset classes, such as those focused on China’s massive economy, has also caught his eye.