Younger investors are showing renewed interest in thematic exchange-traded funds as money returns to sector-focused products tied to areas such as artificial intelligence and infrastructure. The trend comes with concentration risks, making diversification, portfolio fit and fee scrutiny central considerations for retail buyers.
Highlights
- Investors have poured $76 billion into thematic ETFs since December 2024, reversing previous outflows between 2022 and 2024.
- Nearly one-third of recent inflows target artificial intelligence-focused ETFs, with additional interest in energy, natural resources, and infrastructure themes.
- Nasdaq’s 2024 Retail ETF Investor survey shows 75% of Gen Z investors hold ETFs, and 34% express interest in thematic funds.
Thematic fund demand returns
As reported by CNBC, a new Morningstar analysis shows investors put roughly $95 billion into themed ETFs in 2020 and 2021, pulled back from 2022 through 2024, and have since returned, with net inflows totaling $76 billion since December 2024.Artificial intelligence-focused products are leading the rebound, accounting for nearly a third of those inflows, while thematic funds tied to industries such as energy, natural resources and infrastructure are also drawing attention. Todd Rosenbluth, head of research and editorial at TMX VettaFi, says these funds can complement broader diversification strategies by increasing exposure to a specific long-term investment theme.
Nasdaq’s 2024 Retail ETF Investor survey also points to strong demand among younger adults. The survey found 75% of Gen Z investors held ETFs in their retirement accounts, while 34% said they were interested in thematic funds; the poll surveyed 2,000 retail ETF investors in March 2024 and had a margin of error of plus or minus 2 percentage points.
Our earlier article examined how the long-term shift into workplace retirement plans has left a growing share of U.S. households heavily exposed to equity-market swings. It noted that widespread use of passive options such as target-date funds and index strategies concentrates this exposure just as stocks rise on expectations of AI-led productivity gains, increasing the potential fallout if those gains disappoint.
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