Part 7: Investing in Themes You Believe In — AI, Climate, Energy, and Beyond
You’ve built a core portfolio of diversified index funds and individual stocks. At this stage, some investors want to get more specific.
You may believe artificial intelligence will play a major role in the future. Or that climate technology will continue to grow. Or that energy systems will change over time.
How do people typically invest in themes like these? Often, not through individual stocks, which can be highly specific and volatile, but through thematic ETFs.
What's a Thematic ETF?
A thematic ETF is a fund that holds a group of stocks connected by a shared theme. Examples often discussed in investing education include:
- AI ETFs: Companies involved in artificial intelligence and related technologies
- Climate ETFs: Companies focused on renewable energy, clean technology, or electric vehicles
- Cybersecurity ETFs: Companies providing cybersecurity products and services
Rather than concentrating exposure in a single company, thematic ETFs provide exposure to a broader theme.
Why Thematic ETFs Appeal for Emerging-Market Founders
Many investors have a view on the future.
“AI will matter over the next decade.”
“Climate technology will attract increasing capital.”
“Energy systems are changing.”
What’s often unclear is which specific companies will ultimately succeed. A thematic ETF allows exposure to a theme without relying on one potential winner.
The Power: Captured by the Theme, Not the Stock
Consider an example involving AI.
One approach is to buy a single company involved in AI development.
Another approach is to buy a thematic ETF that includes many companies across the AI ecosystem. If one company underperforms but others succeed, the overall theme exposure may still perform as intended.
This illustrates how thematic ETFs can reduce single-company risk while maintaining thematic exposure.
Popular Thematic ETFs on nsave
The following are examples only, commonly referenced in investing discussions. They are not recommendations.
AI and Technology
- Invesco QQQ Trust (QQQ): Tracks large non-financial Nasdaq companies, with significant technology exposure
- Global X Robotics & AI ETF (BOTZ): Focuses on robotics, automation, and AI-related companies
- iShares Global Tech ETF (IGV): Global technology sector exposure
Climate and Energy Transition
- iShares Global Clean Energy ETF (ICLN): Renewable energy and clean technology companies
- VanEck Global Climate Leaders (CLIN): Companies associated with energy transition
- Global X Autonomous & Electric Vehicles ETF (DRIV): Electric and autonomous vehicle ecosystem
Cybersecurity
- iShares Cybersecurity ETF (CIBR): Cybersecurity-focused companies
Cloud Computing
- Global X Cloud Computing ETF (CLOU): Cloud infrastructure and services
Healthcare Innovation
- Emerging Markets Equity ETF with Biotech Exposure (EDCT): Healthcare and biotech exposure in emerging markets
How to Build a Thematic Allocation
The following is an illustrative framework often used in educational materials. It is not a recommendation.
- Core (60%): Broad index funds
- Growth / Tech (20%): Technology-focused or growth-oriented ETFs
- Conviction Themes (10%): Specific themes such as AI, climate, or cybersecurity
- Alternatives (10%): Other assets, such as commodities or additional diversification
This type of structure is discussed to illustrate how:
- Core holdings remain diversified
- Growth and themes add targeted exposure
- Thematic positions are sized so they do not dominate outcomes
If a theme performs well, it can contribute meaningfully.
If it underperforms, the diversified core still represents the majority of the portfolio.
The Right Mindset for Thematic Investing
Thematic investing is generally considered more speculative than broad index investing. It is not about concentrating everything in one idea. Instead, it is often framed as:
- Allocating a limited portion of a portfolio
- Accepting uncertainty
- Balancing conviction with diversification
This approach emphasizes participation without overexposure.
Which Themes Make Sense?
Some themes represent long-term structural changes, often referred to as “mega-themes.”
Examples commonly discussed include:
- Artificial intelligence
- Climate and energy transition
- Aging populations and healthcare demand
- Cloud computing and digital infrastructure
These themes are often viewed as long-term shifts rather than short-term trends.
More narrow or speculative themes, sometimes called micro-themes, tend to carry higher risk and are often discussed in smaller allocations.
How to Invest in a Thematic ETF
From a mechanical standpoint, thematic ETFs are traded like other ETFs. Search for the ETF symbol, choose an amount, and place an order.
nsave does not charge commission on ETF investment orders. Other fees may apply depending on market conditions and third-party providers.
The Risk: Concentration
Thematic ETFs are typically more concentrated than broad market funds. A broad index fund may hold hundreds of companies across many sectors. A thematic ETF may hold fewer companies focused on one industry or trend.
This concentration can increase both potential upside and downside. For this reason, thematic exposure is often discussed as a smaller portion of a portfolio, rather than a replacement for core holdings.
The Opportunity: Secular Tailwinds
Long-term structural trends, sometimes called secular tailwinds, can influence industries over many years. While markets move in cycles, adoption of certain technologies or systems may continue over long periods.
Investors interested in thematic ETFs often cite this long-term perspective as part of their rationale, while recognizing that short- and medium-term volatility remains possible.
Your Thematic Action Plan
The following steps are illustrative, not prescriptive:
- Identify a long-term theme you understand and believe in
- Decide on a limited allocation relative to your overall portfolio
- Research ETFs that provide diversified exposure to that theme
- Hold with a long-term perspective rather than trading frequently
- Periodically review how the theme fits within your broader portfolio
This approach emphasizes diversification, discipline, and awareness of risk.
This content is provided for informational and educational purposes only and does not constitute financial advice. Investments involve risk, including the potential loss of capital, and past performance is not indicative of future results. Any examples or data are for illustrative purposes only. Before making any investment decisions, consult a licensed or qualified financial advisor who can assess your individual financial circumstances and objectives.
