As investors increasingly turn to passive investment vehicles such as ETFs, this year the funds saw record-breaking inflows of $476 billion and assets under management climb to $3.4 trillion. Even traditional money managers have rushed to launch their own exchange-traded funds. But the hot money has flowed into niche funds offering exposure to bitcoin, electric cars, robotics and artificial intelligence.
Global X’s Robotics & Artificial Intelligence ETF (BOTZ) saw its assets under management surge from $4 million to $1.5 billion in the last 12 months, the company said. BOTZ is among the top 20 ETFs this year, up 57 percent, according to the ETF.com.
Ark Web x.0 became the first ETF to invest in bitcoin via the Bitcoin Investment Trust in September 2015. The trust’s underlying asset bitcoin has blown away the performance of traditional investments with gains of 1,400 percent this year.
GBTC itself holds about a tenth of bitcoin per share and is up more than 1,900 percent this year. But the bitcoin trust is riskier than most funds since it trades over-the-counter, rather than in a formal venue like the New York Stock Exchange. GBTC had $1.69 billion in assets under management, as of the end of November, according to its website.
“We’re cognizant of the risks,” Winton said. He said in addition to bitcoin’s technological potential, the investment firm was interested in holding the digital currency because it wasn’t as tied to the performance of traditional financial assets.
Ark’s Innovation ETF also holds the Bitcoin Investment Trust, with a 5.8 percent weighting as of Thursday, according to the company’s website.
Tesla has the second-greatest weighting at nearly 5.6 percent. Elon Musk’s electric car company has soared more than 45 percent this year, despite the company’s inability to deliver products on time while burning through billions in cash.
Again, Ark’s Winton is betting the controversial company will do well.
“I believe that Tesla could be massively misunderstood by the investing public,” Winton said. “I think they ultimately have the potential to be considered a software company.”
For Winton, the bigger picture is the business opportunity in self-driving, or autonomous, vehicles providing an on-demand car service similar to Uber. He predicts the total market cap of companies involved in that business will reach more than $5 trillion by the early 2020s.
Most investors may not be thinking so far ahead, but they bet big on electric cars this year.
The Global X Lithium & Battery Tech ETF (LIT) saw its assets under management jump from $100 million at the start of the year to nearly $1.1 billion this week, according to Global X. The ETF is also one of the top-performing funds this year, up more than 63 percent, according to the Dec. 19 ETF.com report.
China is the biggest market for electric vehicles and is planning to phase out production and sale of fossil fuel cars. On Wednesday, authorities said they will extend a tax rebate on purchases of hybrid or electric cars to 2020. The policy was originally set to end this year.
Jay Jacobs, head of research at Global X, attributed the interest partly to the topics’ popularity in the media.
“Thematic investing started growing very popular overall,” Jacobs said in a phone interview with CNBC last week. “If robotics and lithium are really starting to happen, what else is out there?”
“Investors, from a thematic perspective, really want growth,” he said.
Other top-performing ETFs this year included funds focused on the surge of growth in Chinese technology giants, such as the KraneShares CSI Internet ETF (KWEB) and the Emerging Markets Internet & Ecommerce ETF (EMQQ).
“It is unlikely that all the same theme-based ETFs top performance charts year after year,” Todd Rosenbluth, director of ETF and mutual fund research at CFRA, said in an email. “While [it is] not clear what will be in vogue in 2018, some of the best performers will return back to the middle of the [pack] while others will continue to shine.”
“CFRA thinks technology will remain a focus when investors start the year with a risk-on mindset.”