First, let’s discuss an important. There’s a plethora of thematic exchange traded funds on the market today and that universe is growing, but not all themes are represented by thematic ETFs.
For example, gold is obviously a story/theme this year, but gold ETFs aren’t thematic. It’d be a stretch to say gold miners ETFs are thematic. Sure, those funds can pack big moves in short time windows, but they’re basic industry tracking an old industry at that. Point is advisors and investor can access themes without needing to use a thematic ETF. Some themes are represented by ordinary pure beta funds.
With that housekeeping out of the way, Bank of America (BofA) Research recently identified 10 themes accessible via ETFs that are topping the S&P 500 this year. With a reminder that not all of the related ETFs are thematic, here’s the list in alphabetical order: artificial intelligence (AI), biotech, clean energy, convertible bonds, defense, gold, gold miners, infrastructure and reshoring, Latin America, nuclear/uranium and water.
Just my two cents as someone that’s been covering ETFs for close to two decades, but the ETFs representing six of those themes aren’t thematic in the strictest sense. But the point is ETFs efficiently provide access to winning themes, allowing for tactical advisors and investors to ride those waves without relying on basic broad market funds to accomplish goals they’re not designed for.
Interesting Trends Among 2025 Winning Themes
Among this year’s winning themes, it’s probably not surprising that AI keeps ripping higher. Likewise, the ascent of nuclear energy – an AI derivative play – isn’t a shocker, but the resurgence of clean energy equities under Trump 2. 0 may be a stunner to some market participants.
As the BofA chart above indicates, 2025’s leading themes possess pleasant surprises in the forms of diversification benefits and mostly undemanding valuations. In other words, winning themes accessible via ETFs have approachable costs of admissions and deliver reduced correlations. That’s a win/win.
“Valuations are also mostly fair-to-inexpensive, with all average price-to-book ratios lower than the S&P 500 save defense,” according to the bank. “Many themes have low or moderate correlations to the S&P 500, with higher correlations (>80%) for infrastructure and AI. Gold, gold miners, and Latin America ETFs stand out as having the lowest correlations. Up/down betas to the S&P 500 are particularly strong for infrastructure, water, and clean energy, with positive spreads between their up and down betas. ”
Themes Matter
Some fund industry purists just don’t like thematic ETFs. Those funds are affronts to their sensibilities that center around repetitively buying the biggest, cheapest pure beta offerings and those critics go on to say some thematic ETFs are too much of a good thing, but those criticisms miss the point that investing themes can be rewarding and many themes are underpinned by sound fundamentals.
“There are credible reasons for the outperformance of these themes. AI may just mean a temporary GDP bump, or something far more dramatic; nuclear power stocks create AI power, and convertible bonds create AI financing,” adds BofA. “Policy shifts toward self-reliance are boosting defense tech and infrastructure & reshoring. Record central bank buying has boosted gold and this time, precious metals miners are using FCF to reward shareholders. ”
For advisors that hear the cacophony of thematic ETF criticism and wonder if it’s just better and easier to allocate client capital to the cheapest, most popular ETFs, consider this important point that extends beyond the impressive performances of ETFs tied to high-flying themes: Many of the ETFs that provide that exposure are fairly large and hail from well-known issuers.
In fact, there are 26 ETFs across the 10 themes highlighted by BofA that command the research firm’s highest ETF rating of “1” and all of those products hail from the stables of issuers that are among the top 20 in ETF assets under management.
