Amplify launches thematic-of-thematics ETF, combating cannibalisation
New York-based independent ETF provider Amplify is launching a thematic ETF that takes its inspiration from other companies’ thematic ETFs.
The Amplify Thematic All-Stars ETF (MVPS) will buy stocks most held by thematic ETFs.
Thematic ETFs are defined as those targeting: disruptive technology, evolving consumers, fintech, healthcare innovation, industrial revolution and sustainability.
Companies – like Tesla – that are commonly held in thematic ETFs will be bought by MVPS. Companies weights are capped at 5% of the portfolio.
The fund has significant tech exposure. It charges 0.49%.
Analysis – thematic ETFs can have a lot of overlap
Thematic ETFs used to be a niche product. People thought they were just closet tech or healthcare trackers that repackaged existing products.
But these days thematic ETFs are mainstream and credible, with over $100B under management.
But as thematic ETFs have become established, they’ve hit challenges. The biggest of which has been overlap and cannibalisation. That is, because a handful of stocks tend to be present in many different thematic ETFs, investors can feel that they must pick and choose between thematics. As buying several thematic ETFs can mean you just end up buying the same stocks over and over again.
To take some examples, Intuitive Surgical is in both robotics ETFs and healthcare breakthrough ETFs. As its machines are an example of both advanced robotics, but also of breakthrough healthcare technology.
Nvidia is another. Nvidia is in most of the video games ETFs as its graphics cards (GPUs) power consoles like the Nintendo Switch, PlayStation 5, etc. But it is also in blockchain ETFs as its GPUs are used on bitcoin mining rigs.
This overlap can then mean thematic ETFs cannibalise each other. It leaves advisers reluctant to pile up thematic ETFs in the core of a portfolio like they can the S&P 500, 400 and 600, or the Russell 1000 and 2000. (Which have zero overlap). Advisers do not want to take big sector or stock bets or risk looking stupid in front of their own clients.
Today’s listing is the first example I’m aware of that tries to deal with this problem directly. Other attempts have been made across products ranges. For instance, BlackRock and Rize’s thematic ETF suites in Europe were designed at the outset to minimise overlap. In this way investors could stack them up as core holdings. However MVPS is the first instance of a single product that tries solve this.
Cannibalisation is a real problem. It will be interesting to see if this fund is a real solution.
