How Should I Add Thematic Investments to Portfolios?

The State Street SPDR® ETF Strategy team has the privilege of meeting regularly with financial advisors across the industry. These conversations provide a unique window into the challenges you face — and enhance our dedication to supporting you with the products and insights you need to better serve clients and grow your practice.

To help you navigate today's dynamic market and help your clients achieve their goals, we’ve launched From the Field, a monthly series where our strategists will answer timely questions from advisors like you.

For every investor with questions about investing in artificial intelligence (AI), there’s likely another with an even more targeted interest in robotics, space exploration, smart transportation, cybersecurity or other themes now shaping the future of economies and societies.

The good news is thematic ETFs give investors an extraordinary ability to precisely invest in their interests and in themes that have potential for long-term growth. That’s true even for exposures as narrow as video games, water infrastructure, or cannabis.

The Rise of Thematic ETFs

Unlike sector and industry ETFs that offer exposure to specific economic sectors or businesses, thematic ETFs focus on a specific trend or theme — across sectors and industries.

Despite outflows of -$5.8B, thematic ETFs had $80.2B in AUM at the end of 2024.¹ And now, just one month into 2025, thematics have already driven $2B of inflows, the largest amount since June of 2021.²

How to Add Thematic ETFs to Portfolios

Thematic investing is both art and science. Questions to ask when evaluating a thematic ETF include:

• Is the theme a short-term fad or a megatrend?
• Do the ETF’s holdings overlap with current portfolio holdings?
• Is the exposure likely to increase portfolio volatility?

Thematic ETFs could replace a current allocation or become an additional portfolio exposure. For example, many future technology investments fall into the small growth category, so your chosen thematic ETF may be able to replace an allocation to that style.

And, it can be even easier to add thematics if a portfolio has an “alpha bucket” that provides flexibility to pursue returns regardless of how the new fund interacts with other allocations. While this approach may be easier for your clients to understand, and for you to manage over time, it may be less efficient from a capital efficiency perspective.

How We Can Help

Are you ready to integrate thematic trends into your clients’ portfolios? Would you like help evaluating the return potential of promising thematic trends?

The State Street SPDR® ETF Strategy team is here to help. Contact us to schedule a portfolio review. Or, let us know if there’s a question you’d like us to tackle in a future edition of From the Field.