At this stage, the key advantage of the ETF or exchange-traded fund industry is that a new investor has a tremendous amount of freedom. Are you among those searching for one that focuses on mid-sized healthcare product manufacturers? There's a good chance you'll find an ETF that suits your preference.
Since the ETF business has grown to a $5 trillion sector in the United States alone, so has the amount of funds available. As a result, there are a growing number of funds with increased specificity. Thematic ETFs are designed to isolate a specific market niche and might have a small or large reach. But how can an investor decide if it's a good idea to invest in a thematic exchange-traded fund (ETF)? We'll look at some of the pros and hazards of thematic ETFs, which each investor should think about before putting money into them.
While volatility is a problem, it can be minimized by proper asset allocation. Thematic ETFs, on the other hand, can provide tremendous value. As experts point out, the themed ETF field has grown to the point where virtually no concept is "too far out there." This provides investors with a lot of versatility; for example, if you're interested in a specific portion of the video game market, this gives you a lot of options.
Of course, whether an investor should view themed ETFs as a way of expressing a personal conviction or as a manner of employing their own expertise is debatable. This could lead to tense discussions with a financial advisor, who may encourage investors to take a more global approach to topic selection. For thematic ETF investing, investors should use the S&P 500 sector weightings as a guide. Experts in ETF investing also recommend this because ETF allocations rarely, if ever, exceed the sector weight in the index.
Volatile Nature of ETFs
Volatility is a key problem when it comes to thematic ETFs. This is why experts recommend using the iShares U.S. Medical Devices ETF (IHI). IHI is considered to be riskier than other sector equities because it focuses on companies that create medical devices. That said, when the market is volatile, IHI, on the other hand, may underperform. This addresses one of the concerns with thematic ETFs. As in, whenever healthcare stocks make up about 10% of the S&P 500, and IHI is projected to be more volatile than the sector as a whole.
The more narrowly a fund concentrates on a specific subset of sector companies, it increases the chances of volatility. The theme fund can be thought of as a cross between a bigger basket of sector stocks and a single stock, both of which are often volatile.
At the end of the day, The more narrowly a fund concentrates on a specific subset of sector companies, the more volatile that fund is expected to be. As analysts point out, a wide sector will be less volatile than a narrower industry group or theme fund the vast majority of the time. The theme fund can be thought of as a cross between a bigger basket of sector stocks and a single stock. This is the reason why investors in ETFs need to be careful and keep in mind the various factors that weigh down the ETF prices in the market. To find out more on ETFs and Bitcoin trading, feel free to visit bitcoin up to get access to all the latest information and resources that can help you make a more informed decision.