From Morningstar:

In the world of exchange-traded funds (ETFs), there are unique funds for every theme, such as blockchain and the metaverse. However, investing in niche ETFs can lead to losses due to poorly timed buys and sells, with investors losing over two-thirds of total returns over a five-year period.

Unique ETF launches, like Europe’s first pet care ETF and junior uranium miners ETF, attract media attention. However, Morningstar analysts warn that buying and selling habits associated with thematic funds often result in significant value destruction, with thematic ETFs showing a higher “investment gap” compared to traditional mutual funds.

When considering thematic ETFs, thorough research is essential, as thematic funds can offer outsized returns but come with significant risks. Morningstar advises investors to look beyond the narrative and understand the fund’s tracking of the chosen theme and whether the extra fee is justified before investing.

Morningstar recommends a three-part framework for evaluating and making informed decisions about thematic ETFs: analyzing the theme, understanding the ETF’s implementation of the theme, and considering the timing of entering the market. Timing is crucial with thematic ETFs, as the growth potential of a theme may already be priced into stock prices by the time funds are available to track it.



Read more at Morningstar: Are Unique ETFs Investable? | Morningstar