Three Themes That Will Drive ETF Growth in 2021, According to Market Analysts

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Thematic investing could have room to expand.

After a year underscored by massive growth in thematic ETFs, that corner of the industry looks like it can keep up the pace in 2021 as investors search for narrower ways to play certain trends, two ETF analysts told CNBC's "ETF Edge" this week.

One of 2020's shining examples has been the Renaissance Capital IPO ETF (IPO), up over 111% year to date, Old Mission's Harry Whitton said in a Wednesday interview.

"The fund has grown to over half a billion dollars this year. It's really exciting," said Whitton, his firm's head of ETF sales trading. "I think everybody's tied onto the whole record of IPOs happening this year — in December, over 400 new issues launched in the IPO space."

Renaissance Capital expects heavy hitters such as SpaceX and Instacart to debut next year, and with that, the IPO ETF's gains to keep adding up.

Another fund family that's likely to build on its 2020 success is that of Ark Invest, which has brought in over $15 billion in assets year to date, Whitton said.

Ark runs seven U.S.-based ETFs tracking themes such as robotics and the genomic revolution. Its largest fund by assets is the Ark Disruptive Innovation ETF (ARKK), up nearly 148% this year.

"They were a pretty small issuer and now have become a major player in this space," Whitton said. "They have funds that are up 140, 150, 160% and they're not leveraged products, which is usually where you see those returns. It's just been a fantastic story and it'll probably be ongoing just because they're really innovative in what they do."

Whitton also had his eye on trading activity in emerging markets ETFs, noting that the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) "has gone from 20 million shares outstanding to 80 million shares and has really performed very, very well."

Video gaming ETFs are also on track for another winning year, Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, said in the same "ETF Edge" interview.

"These video gaming-oriented ETFs have gathered about $1 billion of net inflows in 2020," Rosenbluth said, referring to plays including the Global X Video Games & Esports ETF (HERO), the Roundhill Bitkraft Esports & Digital Entertainment ETF (NERD), and the Wedbush ETFMG Video Game Tech ETF (GAMR).

"These are global ETFs, so, while you have exposure to Electronic Arts and Activision Blizzard, about 25% of HERO ... is in the United States. You've got exposure to Nintendo," he said.

The VanEck Vectors Video Gaming and eSports ETF (ESPO), the largest gaming ETF by assets, has the China-based Tencent as its largest holding, Rosenbluth added.

"You really have a global play for these ETFs," he said. "We think this trend is going to continue into 2021 regardless if more people are going back home. They've gotten comfortable playing video games and they're likely to do that in the future."


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