Yet within this massive ETF market exist a wide range of different investment strategies.
For investors with a relatively longer time horizon, they can consider taking a thematic approach.
Thematic investing takes a structural view.
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It means identifying the world’s biggest economic disruptors and considering how to capitalize on them across different geographies and markets.
This approach can be especially effective through an ETF wrapper, given the tax and efficiency benefits of ETFs.
Within thematic ETF investing, we currently see significant promise in several key themes including artificial intelligence (AI) and the opportunity for chipmakers, precious metals and particularly silver miners, and the clean energy revolution.
The AI Revolution’s Potential
The AI revolution is well underway, spurring significant investments in productivity enhancements and potentially completely reshaping a wide range of industries from major tech titans to manufacturers across geographies.
This is especially promising for AI chipmakers, and by 2028 annual spending on AI chips may grow at a compound annual growth rate (CAGR) of over 30% to $128bn.
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Most of these chips go to data-processing centers, but increasingly AI chips can also be used directly in devices, creating an exciting new opportunity for chipmakers and AI broadly.
This could include everything from autonomous driving to edge computing to AI chips in people’s mobile phones.
Investors should continue to keep their eyes on this theme as AI increasingly penetrates new markets and demonstrates new, unexpected use cases.
Silver Offers ETF Investors a Bright Spot
Silver represents another ripe area for ETF investors.
While the metal often attracts less attention than gold, its unique properties as both a precious and industrial metal may make it especially appealing in today’s market.
In fact, silver’s use cases continue to grow in recent years given that the commodity is highly conductible, malleable, and light-sensitive.
A range of fast-growing segments—from solar panels to touch screens to water purification—all rely on silver in their manufacturing to various degrees.
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Beyond these use cases, the economics behind silver may also set it up for success. Silver’s precious metal qualities make it a strong hedge during periods of elevated volatility and a strong store of value during potential economic downturns.
Further, the gold-silver price ratio, or the amount of silver required to purchase an ounce of gold, has in recent decades hovered around 67 but currently sits near 82—indicating that silver appears comparatively cheap.
ETFs investing in silver miners can help provide exposure to this commodity across the various geographies—particularly in the Americas—where it is extracted both directly and as a by-product.
The Green Energy Transformation
Countries across the globe have set ambitious goals for reaching net-zero carbon emissions targets, and significant public and private investments in clean technology themes have major implications for thematic investors. Among these themes is wind power, which looks set for a strong rebound during the remainder of 2023.
The Global Wind Energy Council forecasts 100GW (gigawatts) of new capacity this year, a 15% year-over-year growth, with an additional 680GW of capacity coming online over the next four years. However, in order to hit current international goals of limiting global warming 1.5 degree Celsius, that growth will need to accelerate even further to roughly 400GW annually by 2030.
More broadly, hitting climate goals will require roughly $47trn more in total global investments in the next several decades—including solar photovoltaic power systems, biofuels, and hydropower—according to the latest IRENA publication.
While both public and private sectors are starting to rise to the challenge, it is clear that there is room for significantly more green investments.
For thematic investors, this provides them with a range of options—from investing directly in the production of alternative energies such as wind and solar power to investing in subsequent technologies that may benefit from these changes, such as electric vehicles.
Luis Berruga is CEO of Global X Funds
