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ETFs on the Fringe

This week, Horizons ETFs Management Inc., a Canada-based provider of ETF solutions, launched the world’s first ETF focused on the emerging psychedelics market. The ETF is traded on the NEO stock exchange and tracks the North American Psychedelic Stock Index, which comprises 17 North American life science and pharmaceutical companies.

Growth of thematic ETFs
Horizons is hoping to piggyback off their introduction of the world’s first cannabis-focused ETF in 2017. Both psychedelics and cannabis represent just a portion of the “thematic” ETF categories that are now available to investors. Others include opportunities to invest in the burgeoning space economy, companies that appeal to millennials, the Internet of Things, robotics and the genomic revolution, to name a few. This availability indicates a growing trend among ETF providers to expand their offerings into more and more “micro” segments or themes as they continue to launch increasing numbers of ETFs even amid less than promising market trends. As the charts below show, while 2020 saw a record number of ETF launches, there was also a record number of ETF closures, either by delisting or liquidation—a trend that did not spare even the most prominent ETF providers.

Source: ETF.com

Furthermore, data from September 2020 shows new ETF products launched in 2020 garnered fewer assets than ETF introductions in past years.

Still, even amid massive numbers of closures within the $5 trillion ETF market, and a failure to attract significant inflows to new ETF products, ETF providers were not fazed. We expect this trend to continue as ETF providers look to launch even more products—including newer and more esoteric theme-based ETFs—to respond to market demand and ultimately give more choice to investors.