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The Tidal Financial Group (Tidal) expanded rapidly over the last decade and encompassed multiple ETF related brands including Toroso Investments, Tidal ETF Services, and the ETF Think Tank. Going forward all activity will be unified under the Tidal brand as we become one company, dream, family, and platform focused on holistic ETF customer solutions.

Thematic ETF Playlist

We introduced the ETF Playlist a few months back when we looked at the amount of State Owned Enterprises (SOE) infecting many emerging market ETFs. This week the ETF Think Tank dives deep into proprietary statistics on Thematic ETFs and offers up insights on four Thematic ETF Playlists. Based on our ETF Think Tank Security Master, there are currently 166 non-levered equity ETFs listed in the US. That represents $107 Billion in assets with an average weighted expense ratio of 63.5 bps. We will be speaking with State Street Global Advisors about thematic ETFs next Wednesday, December 16, on the Think Tank Exchange.

Playlist 1: Performance

Overall, this has been a great year for the performance of thematic ETFs, with many producing triple digit returns. The results are not terribly surprising when looking, with hindsight, at the winners and losers. Airlines, Leisure and Oil/Energy Services were all the bottom performers. The Winners include Clean Energy, Innovation and Online Retail; all were up over 100%. The playlist below looks at performance through December 5, 2020.


Playlist 2: Zombie Exposure

One of the factors driving both the out-preperformance and under-performance of certain themes is their exposure to zombie industries. We have written about the concern with industry’s at risk of technological obsolesces or completely shut down by the pandemic response multiple times this year. We have also written about the themes that focus on mega-trends that have seen rapid adoption in the COVID economy. The ETF Playlist below shows the Zombie exposure for the top ten and bottom ten thematic ETFs. 


Playlist 3: Concentration

The ETF Think Tank has developed a proprietary metric to measure the concentration of ETFs. ETF Think Tank Members have access to tools that allow them to access how diversified an ETF is based on the very nerdy formula below:

When it comes to Thematic ETFs, concentration is a key metric to determine time horizon. We recommend using ETFs with high concentration scores for short term trades, since they will likely capture the most theme beta but are often very volatile. For investors seeking long-term exposure to a theme that can compound over many years, we usually recommend going with ETFs with lower concentration scores. 


Playlist 4: SmartCost

SmartCost is another proprietary metric available to ETF Think Tank Members that allows investors to determine the cost they are paying for active share exposure. Essentially, we isolate the unique portion of an ETF versus its benchmark and then apply the difference fee versus the benchmark to the active share. 


The Playlist below helps investors determine if the fee they are paying for a theme is justifiable. In general, we suggest looking for ETFs were the SmartCost is less than or equal to the stated expense ratio.

Disclosure

The information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

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