Batcha views thematic funds as complementary positions within a portfolio sleeve allocated to U.S. growth stocks. “If we like a theme and think it’s well-positioned and timely, we’ll use that as a satellite within that core asset class,” he says. “So we might use a very low-cost ETF that’s the beta for the index, and then we can get exposure to these themes to try to zero in on something we think has a better growth opportunity than the index over time.”
But Batcha says he’s not looking to be the first guy on the block to buy a thematic ETF when it hits the market. “With IFLY [ETFMG Drone Economy Strategy ETF], we let it go a few months before we bought it,” he recalls. “There was regulatory risk with these [drones], but at the end of the day the commercial uses of this technology beyond military purposes made it clear this was a trend that wasn’t going away.”
And he noted there was a lot of hype accompanying the launch of the ETFMG Prime Cyber Security ETF (HACK) nearly four years ago, so he sat tight on that to let the dust settle. “We waited around a year and a half later before buying it,” Batcha says. “We didn’t get it at the bottom, but we bought it at the same price we could’ve earlier and it has done well.”
He notes his firm is looking into both artificial intelligence and robotics ETFs, but had not invested in those areas yet.
One sector Batcha thinks has room to run is blockchain, and some of his clients have a stake in the Reality Shares Nasdaq NexGen Economy ETF. He says his firm was drawn to blockchain because a lot of its clients inquired about cryptocurrencies, and Batcha and his team wanted to educate themselves about it. “We liked the idea of blockchain relative to the digital currencies because blockchain is something that’s real, but there’s a lot of uncertainty about the future of cryptocurrencies,” he says.
He looked under the hood to examine the investment process behind the blockchain ETFs and the individual securities in these funds.
“BLCN [the Reality Shares fund] has an impressive advisory board with a disciplined, factor-based approach that identifies characteristics of companies that allow blockchain technology to benefit them,” Batcha explains. “The portfolio has a mix of holdings ranging from large-cap technology companies that are early adopters of blockchain to blockchain pure plays.”
He says he’s not deterred that BLCN has more or less flatlined since its heady early days. “That’s reflective of the small- and mid-cap technology space that hasn’t been on fire. The only thing that’s been on fire are the FANG stocks and tech mega-caps,” he says. He adds that he’s more concerned that blockchain, being a young industry, will see its share of hot air and maybe fraud.
“With BLCN, the idea is that its advisory board is cognizant of that and that the criteria they’ve set up for selecting companies will help investors avoid as much of that as possible,” he says.
Strategic Or Tactical?