The ETF ecosystem grows almost every day, with hundreds of new strategies and massive flows coming with each year that goes by. Thanks to the ETF wrapper’s flexibility, issuers can craft and release targeted, transparent, and tax-efficient solutions for portfolios. The recent Nasdaq VettaFi Asset Allocation Summit explored how issuers like Direxion, VanEck, and Roundhill Investments are meeting technological innovation with ETF innovation.
Key Takeaways:
- The ETF wrapper's flexibility and relative ease of use has platformed it for thematic investing success.
- As tech leaps into the AI age, AI can help empower thematic and leveraged ETFs to deliver for clients.
- Leaders from Direxion, VanEck, and RoundHill talked thematic ETFs and AI at a recent Nasdaq VettaFi webinar.
The segment, hosted by Nasdaq Head of ETF Listings Gabby Vennitti, included thoughts from VanEck Thematic ETFs Product Manager Nick Frasse, Roundhill Investments ETF Strategist Thomas DiFazio, and Direxion SVP of Product Strategy Ryan Lee. The trio discussed not only the place for AI and tech in investor and advisor practice, but also, of course, in the investing landscape.
The trio not only discussed how they use AI to assess data in their work, but how the ETF wrapper itself represents an innovation in investing technology. Frasse, for example, underscored just how much AI is part of his daily workflow, helping him “research the competitive landscape.”
DiFazio explained that AI has helped assess the reams of information asset managers must consider. That can help “bridge the gap,” he said, from the earliest stages of portfolio construction to ETF operation.
“There's just so much information out there,” he said. “And even for the biggest teams, you cannot keep up with it all. So being able to utilize AI to even just tell you, ‘Hey, you should be checking out what was said at this investor day for a certain company, or here's a translated Japanese transcript that you may not be able to read in Japanese.’”
According to Lee, AI can also help better operate intensive, high-touch funds like leveraged ETFs. Direxion, for example, offers 2x exposure to major stocks like Micron (MU) in the ETF wrapper, he said.
The Direxion Daily MU Bull 2X ETF (MUU) was recently joined by a SpaceX-focused leveraged pair of ETFs. The firm plans to leverage the ETF wrapper to offer further leveraged exposure to single stocks. That includes Anthropic’s upcoming IPO, he said.
How AI Empowers Thematic ETF Investing
DiFazio further expounded on how the ETF wrapper has made thematic fund launches easier. Its transparency and tradability help make the wrapper a powerful tool to package strategies. He gave the Round Hill NeoCloud ETF (NCLD) as an example, which aims to capture semiconductor upside.
The three agreed that thematic ETFs don’t have to make up a huge part of portfolios to play a useful role. Frasse explained that such funds can deliver for portfolios even while taking a satellite slot. VanEck offers the VanEck Semiconductor ETF (SMH) as a leading name in that thematic space.
“We don't think it needs to command an entire part of your portfolio. But I think there's tremendous argument for having something like semiconductors as a piece of the portfolio over the long term,” he said.
That said, Lee explained, leveraged thematic or single-stock ETFs aren’t for every investor. Strategies like Direxion’s NASDAQ-100 Equal Weighted Index ETF (QQQE) are powerful but delicate tools.
“QQQE is our equal-weight NASDAQ strategy that if you were to think the market was getting a little top heavy right now, still lets you keep on a lot of that tech exposure,” he added.
“But in general ... whether it's single stock or our broad-based index offerings, we always try to lead with education,” Lee noted. “Leverage ETFs are not for everybody, and they're not these buy-and-hold vehicles that you set and forget.”
Thematic ETFs in the AI Moment
Overall, ETFs offer advantages over just investing directly in single stocks. As Frasse explained, while there are plenty of happy investors in Nvidia (NVDA), finding the next NVDA is tougher.
“If you were a purchaser of Nvidia back in 2022, you're probably pretty happy with that,” he said. “But at the end of the day, markets continue to evolve … and we're seeing AI start to become more mature, and it makes it very difficult to see where the next bottleneck is going to be.”
“So owning something like SMH ... is a great way to capture focus core exposure without having to take on that single-stock risk and do it in a diversified way,” Frasse added.
Looking ahead to the broader investing landscape in AI, the trio broadly agreed on the breadth of the AI revolution. It has plenty of run to deepen, however, into countless fields. Thematic ETFs, backed by powerful AI tools and processes and in leveraged or nonleveraged styles, can prove powerful tools to approach that investing moment.
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