Thematic Funds For The Tactical Sleeve

In your tactical sleeve, most of you would probably be better served with actively managed (or “active” rules-based managed) multi-theme ETFs or mutual funds with good performance and a solid manager or attractive rules, rather than taking individual stock positions.

Funds have far less idiosyncratic (single security) risk than single stocks, and they can take more positions than you reasonably could. The funds, or the rules, are constantly evaluating the suitability of their holdings to their strategy for potential change, with a team of experts applying a level of scrutiny that neither you nor I could muster or apply.

The ETFs at least are more able to make changes within their portfolio in a tax efficient manner than is possible for you to do if you held the same individual stocks and made the same changes.

There has been a flood of new thematic funds released in the past few years. There are many single theme funds, and a smaller number of multi-theme funds. I believe that a thematic approach within a tactical sleeve should be anchored by multi-theme funds, and supplemented, if desired, by single theme funds. Just as individual stocks increase and decrease in appeal, so do themes. That makes multi-theme funds more likely to perform well. Of course, there are/will be individual theme funds that outperform multi-theme funds, but it is difficult to know which those will be.

Among the multi-theme funds, there is a small number of somewhat consistently top performers. There are five such funds that I believe are the better choices – all of which I utilize for myself. They are:

  • LOUP: Loup Frontier Technology ETF
  • ARKK: ARK Innovation ETF
  • XITK: FactSet Innovative Technology ETF
  • KOMP: S&P Kensho New Economies ETF
  • MITEX (institutional)/MATFX (retail): Matthews Asia Innovators Mutual Fund

The funds have low overlap of holdings, apply distinctly different strategies and rely on different types of competency to do their work.

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Disclosure: I am/we are long LOUP, XITK, KOMP, MITEX.

Disclaimer: "QVM Invest”, “QVM Research” are service marks of QVM Group LLC. QVM Group LLC is a registered ...

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