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What investors should know about investing in thematic ETFs, according to two pros

Investors shouldn’t underestimate the scope of thematic exchange-traded funds, says Global X’s Jay Jacobs.

With more than a third of thematic ETFs on the market having launched just in the last year and a half, the space is rapidly expanding from its technology-focused roots, the firm’s senior vice president and head of research and strategy told CNBC’s “ETF Edge” this week.

“I think the mistake that some investors might be making is thinking of thematic investing as only looking at technology,” Jacobs said in the Monday interview.

Global X’s two fastest-growing ETFs this year, U.S. Infrastructure Development (PAVE) and Lithium & Battery Tech (LIT), don’t have much tech exposure at all, Jacobs added.

“Looking outside of tech in the thematic space I think has been key for investors to find that diversification,” he said.

Many top thematic ETFs are down year to date, so investors should also come to terms with the potential risks before buying in, ETF Action founding partner Alex Shepard said in the same interview.

“The fact that there can be increased volatility and there can be increased risk, that is what you’re chasing when you’re looking for above-average returns outside of these passive, broad-based indexes,” he said.

However, new investing styles could help mitigate that risk like never before, Shepard said.

“Just because the majority of products out there in the marketplace are deemed passive, it doesn’t mean that they’re not being used in an active way around a core position,” he said.

Only roughly $300 billion in assets follows active strategies, Shepard said.

“Ten, 20 years ago, investors and advisors alike didn’t have the ability to get creative,” he said. “Now you’re looking at nearly 2,800 U.S.-listed ETFs. They now have the tools to tilt a portfolio one way or another based on their risks, their objectives, and that hasn’t been there historically.”

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