Thematic ETFs finish 2021 on a bitter observe. Methods to handle your holdings

Thematic exchange-traded funds have had a troublesome go of it this yr.

Almost 100 of these ETFs are down 20% or extra for 2021, with widespread funds such because the Ark Innovation ETF (ARKK) and Amplify On-line Retail ETF (IBUY) seeing among the largest declines.

Traders in such funds could wish to contemplate tax-loss harvesting, ETF Motion founding companion Alex Shepard advised CNBC’s “ETF Edge” on Monday.

Tax-loss harvesting is a technique by which traders promote shedding investments, understand a loss and scale back their capital positive aspects taxes.

“While you have a look at the large quantity of flows that went into a few of these themes in January and February of this yr once they had been peaking, should you’re not your portfolio proper now and you’ve got a few of these positions … it is one thing you need to be doing,” Shepard stated.

Nevertheless, traders ought to be cautious when swapping sure ETFs out for others, World X’s Jay Jacobs stated in the identical interview.

“Throughout the thematic ETF house, there’s a whole lot of ETFs that sound comparable however have very totally different holdings. There’s about six robotics ETFs on the market. The common overlap between these funds is lower than 20%,” stated the agency’s senior vp and head of analysis and technique.

“For those who’re promoting out of 1 robotics fund and getting publicity to the subsequent, simply be very conscious of what are the precise holdings you are getting in that fund,” he stated. “However … I feel traders ought to all the time be contemplating tax-loss harvesting, particularly right now of yr, and the truth that now we have extra thematic ETFs than ever earlier than offers traders extra choices and finally that is nice for the market.”

It additionally helps to be ready for volatility in additional area of interest merchandise, stated Jacobs, whose agency affords 90 ETFs centered on themes, revenue, commodities and different methods.

“These funds are going to be unstable within the close to time period and hopefully develop in the long term,” Jacobs stated. “We all know hashish just isn’t going to be legalized federally in a single day. We all know robotics is not going to be adopted throughout a whole lot of warehouses in the US in a single day.”

“As a result of these are concentrated portfolios that may be sentiment-driven within the close to time period, there’s completely going to be volatility,” he stated. “By diversifying throughout themes, … whether or not it is expertise, whether or not it is infrastructure, whether or not it is individuals and demographic-led developments, I feel that makes for a way more sturdy strategy to thematic investing the place we are able to climate these ups and downs within the close to time period.”