Like any good advisor, Tom Phillips at T.S. Phillips Investments looks beyond the marquee and goes inside of an ETF before investing in it. And when it comes to blockchain, he liked what he saw with the Innovation Shares NextGen Protocol ETF, the one with the ticker symbol KOIN, for reasons beyond its advertised blockchain exposure.
“The KOIN ETF is supposed to be about blockchain, but when you look at the portfolio it’s a list of blue chip stocks with an overall theme of blockchain software,” he says. “I tell my clients that while the companies in KOIN are exposed to blockchain, it’s not a huge percentage of their revenue, so you might get more performance because it’s filled with blue chip companies that are popular now than because they have blockchain exposure.”
Some of his client portfolios also include the ROBO Global Robotics and Automation Index ETF (ROBO), a nearly $2.2 billion fund that invests in robotics, automation and artificial intelligence companies.
“ROBO sold off in late January/early February like just about everything else did, and has been going sideways at a lower level ever since,” Phillips says. “But I still like it as a long-term hold, and I’m a long-term investor.”
The narrow focus of many thematic ETFs begs the question of whether they should be used strategically or tactically. Benjamin Lavine at 3D Asset Management says it depends on your management style and what you’re trying to deliver.
“If you’re a strategic manager like us, you can use them strategically,” he says. “Thematically, we want to deliver a global-growth model profile to our advisors where we’re systematically capturing much of the risks taken by a typical global growth manager.”
And Lavine sees growth-oriented thematic ETFs as the type of higher-risk strategies typically used as a satellite allocation within a broader growth portfolio. For that reason, he says his firm recently incorporated three thematic ETFs into its growth portfolios—the Global X Robotics & Artificial Intelligence ETF (BOTZ), the SPDR Kensho Future Security ETF (XKFS) and the SPDR Kensho Intelligent Structures ETF (XKII).
BOTZ is similar to the ROBO fund both in its focus and with its nearly $2.2 billion asset base. The SPDR Kensho products are part of a suite of three ETFs launched by State Street Global Advisors last January that track proprietary indexes developed by Kensho Technologies, a provider of next-generation analytics, machine learning and data visualization systems. As per the funds’ literature, SPDR Kensho ETFs focus on companies helping to drive the so-called fourth industrial revolution.
“The Kensho approach is dynamic in that it’s constantly scouring all of the text information out there related to a specific company and using algorithms to get a sense of how much a company is focused on a particular theme,” Lavine says.
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