Thematic ETFs are good choices if you have high conviction about a certain industry.
Exchange-traded funds (ETFs) can be excellent tools for achieving diversification or gaining exposure to a particular theme or industry.
Chock-full of big tech-orientated companies, the Vanguard Growth ETF (VUG 1.48%) is up a staggering 37.4% over the past year and is hovering around an all-time high. The massive fund has over $220 billion in net assets and continues to outperform the S&P 500 and the Nasdaq Composite. But there are plenty of other, smaller ETFs that could also be worth a look.
Two that stand out are the Robo Global Robotics and Automation Index ETF (ROBO 0.30%) and the Ark Autonomous Technology & Robotics ETF (ARKQ 0.28%). Here’s why all three ETFs are worth buying now.
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This red-hot ETF is showing no signs of slowing down
Daniel Foelber (Vanguard Growth ETF): If you want to invest in big tech but don’t know where to start, then the Vanguard Growth ETF may be right for you.
The top 10 holdings make up around 58% of the fund, with the “Magnificent Seven” stocks comprising 51.7% of the fund. The Magnificent Seven includes Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla.
The massive outperformance by top Magnificent Seven stocks like Nvidia and Meta Platforms has helped drive the ETF to new heights. But the ETF is, in some ways, a victim of its own success.
The price-to-earnings ratio has ballooned to 41.2 and the yield is down to 0.5%. Investor sentient is optimistic, and that means focusing on what companies could grow to become rather than where they are now. Looking too far into the future or assuming forecasts will go exactly as planned is a recipe for disappointment.
In this vein, the best way to approach the Vanguard Growth ETF is with a long-term time horizon and the understanding that it will rise and fall based on the performance of the Magnificent Seven. If other sectors start leading the market or big tech stocks sell off, expect the Vanguard Growth ETF to take a sizable hit. After all, the fund did lose a third of its value in 2022 during the widespread growth stock sell-off.
All told, the Vanguard Growth ETF can serve a helpful purpose in just about any portfolio, so long as investors realize the same stocks that have contributed to its outperformance could also drag it down if there is a sell-off.
Manufacturing investment in robotics and automation is just getting started
Lee Samaha (Robo Global Robotics and Automation Index ETF): Investing in growth involves committing funds to a long-term theme and being ready to endure its fluctuations. This holds true for investments in robotics and automation.
There’s little doubt that it’s a powerful secular trend, made stronger by advancements in industrial software and digital technologies that significantly enhance robotics/automation productivity. In addition, the need to reshore production and simplify supply chains by moving production closer to home will drive investment in technologies that make production outside of low-labor-cost countries viable.
On the other hand, demand is always dependent on manufacturers’ capital spending plans, and economic growth concerns will always guide them.
As such, don’t expect linear growth from this ETF, but do expect exposure to a diversified collection of stocks (currently 77) within the theme discussed. The ETF doesn’t just invest in companies that offer robotics/automation solutions, such as Rockwell Automation and Fanuc. It also invests in companies that use these technologies to improve their offerings to investors, like Intuitive Surgical and Deere.
I see the ETF and the investment theme oscillating up and down with the economy around an overall uptrend driven by secular adoption of automation and robotics. So get ready for ups and downs, with hope for more of the former over the long term.
This AI-focused Cathie Wood ETF is a great choice for growth investors
Scott Levine (Ark Autonomous Technology & Robotics ETF): For investors keen on a growth opportunity like the one that the Vanguard Growth ETF offers, one of the Ark Invest ETFs is an obvious consideration. Cathie Wood is synonymous with growth investing, and the Ark Autonomous Technology & Robotics ETF is packed with growth stocks — especially those that are focused on artificial intelligence (AI).
Like the Vanguard Growth ETF, where it’s the ninth-largest holding, Tesla represents a major position in the Ark Autonomous Technology & Robotics ETF. It’s the top holding, with a 10.4% weighting in the fund. And it’s not the only AI stock that will tickle growth investors’ fancies. UiPath, a leader in business automation solutions, and Trimble, a positioning and modeling company that leverages the power of AI in various solutions, stand as the second- and fourth-largest holdings, respectively.
Besides AI-oriented stocks, the Ark Autonomous Technology & Robotics ETF has holdings that provide exposure to other growth industries including space exploration, 3D printing, and energy storage.
There are some notable differences between the two ETFs that investors should recognize before picking up shares of the Ark Autonomous Technology & Robotics ETF. For one, with an expense ratio of 0.75% it will cost investors more to hold on to it than the Vanguard Growth ETF, which has a 0.04% expense ratio. Additionally, the Ark Invest ETF doesn’t pay distributions to investors; however, the Vanguard Growth ETF pays dividends on a quarterly basis.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Intuitive Surgical, Meta Platforms, Microsoft, Nvidia, Tesla, UiPath, and Vanguard Index Funds – Vanguard Growth ETF. The Motley Fool recommends Deere & Company , Fanuc, and Trimble and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
