Thematic ETFs sit in a weird niche between sector ETFs and stock picking. They’re usually built around a specific idea or long-term trend, like clean energy, artificial intelligence, or space exploration.
The official definition usually goes something like this: “ETFs that seek to capture investment opportunities in long-term structural trends across sectors, geographies, or the entire market.”
My version? I just ask myself: “Is this a thesis I could’ve come up with in the shower or while stoned?” If the answer is yes, it’s probably a thematic ETF. They’re a mixed bag, to say the least.
Objectively, most of them are less diversified than a broad market index fund and more expensive. On top of that, there’s the real risk that the ETF was launched at the peak of a hype cycle, meaning you end up buying the top.
Just ask anyone who loaded up on metaverse ETFs, the Inverse Cramer ETF, or whatever other flavor-of-the-month trend has already flamed out.
There’s no shortage of ways to dig into this space, but I figured I’d give you a more lighthearted intro to thematic ETFs. Today I’m profiling three still-kicking examples: the good, the bad, and the ugly.
Thematic ETFs: The Good
For me, a good thematic ETF checks three boxes: it doesn’t charge an arm and a leg, it targets a structurally sound, long-term theme, and it’s somewhat diversified, with at least 50 holdings to avoid overconcentration.
The Global X U.S. Infrastructure Development ETF (NYSE:PAVE) hits all three. Its 0.47% expense ratio is reasonable by thematic ETF standards, and it gives you exposure to 100 U.S. stocks involved in the production of raw materials, heavy equipment, engineering, and construction—all tied together under the Indxx U.S. Infrastructure Development Index.
I really like what this fund owns. It includes railroads like Union Pacific (NYSE:UNP), CSX (NASDAQ:CSX), and Norfolk Southern (NYSE:NSC), industrial giants like Deere (NYSE:DE) and Emerson Electric (NYSE:EMR), and even a few homebuilders sprinkled in. Basically, it pulls together the best of the industrials, materials, and utilities sectors under a single, sensible theme.
It’s done well, too. PAVE has a five-year annualized return of 18.64% and earned a five-star Morningstar rating, outperforming the majority of the 88-fund infrastructure category.
Thematic ETFs: The Bad
In contrast, a bad thematic ETF is one that’s pricey, hype-driven, or built around an incredibly niche industry that, for all intents and purposes, doesn’t offer a solid investment opportunity. If you find yourself wondering, “Who asked for this?”—that’s usually a good sign it’s not a good ETF.
For me, that’s the ProShares Pet Care ETF (NYSE:PAWZ). Look—I love animals. I foster kittens, I have two cats, and I regularly spend more on their food than my own. But I have never, ever felt the urge to translate that into my investment strategy.
And that’s the problem with a lot of subpar thematic ETFs—they’re designed to tell a story, tug at emotions, and appeal to familiarity, but when you look under the hood, they don’t hold up.
PAWZ isn’t outrageously expensive—0.50% puts it slightly above a broad fund like SCHD. But it’s the nebulousness that kills it. The fund aims to invest in companies that “potentially benefit from the proliferation of pet ownership.” What does that even mean?
You end up with a hodgepodge of names: some pure-play pet stocks like Chewy (NYSE:CHWY), others in animal health like Zoetis (NYSE:ZTS), and then some that are barely related, like Nestlé (because they own Purina) or CVS Health (NYSE:CVS) (which, yes, has a pet prescription business—but come on).
It’s haphazard at best, ineffective at worst. PAWZ is essentially a highly niche, pricey consumer discretionary ETF that’s underperformed. Its five-year annualized return is a weak 5.0%, and over the past three years, it’s actually posted a -6.39% annualized loss.
Spoiler: it pumped during the COVID-19 stimulus era, when pet adoptions surged and people threw money at any company, however unprofitable or speculative—and it’s been fading ever since.
Thematic ETFs: The Ugly
These are the ETFs with a high likelihood of losing you money. They represent what happens when ETF strategists chase memes instead of fundamentals—ideas born in Discord chats and Reddit threads, not research departments.
The worst offender right now is the Battleshares TSLA vs F ETF (NYSE:ELON). It’s a leveraged single-stock long-short ETF. The fund takes a leveraged long position in Tesla (NASDAQ:TSLA), typically between +180% to +220% of the fund’s net assets, and a leveraged short position in Ford NYSE:F), targeting -80% to -120%.
You’re making a binary directional bet that Tesla will go up and Ford will go down, with leverage applied to both sides. As of March 24, 2025, ELON is down 51.11% year to date, due to Tesla’s persistent price decline. Leverage amplifies losses, so this structure doubles down on being wrong.
It charges a 1.29% expense ratio, which is exorbitant given the fund’s mechanics and risk profile. The only silver lining is that ELON has just $839,790 in net assets, so the amount of investor capital incinerated remains mercifully small. They’ll probably put this thing out of its misery soon.