Where Wall Street has built a thesis for everything

The US market has 393 thematic ETFs covering everything from pets and cannabis to space exploration.

Most Indians invest abroad to get global exposure. Funds that track the broader markets like the S&P 500 or NASDAQ are popular options, and a few sophisticated investors go the extra mile and buy the Brazilian Ibovespa or maybe Hong Kong’s Hang Seng index. But beneath the surface, there’s an ocean of thematic ETFs that promise to put your money behind any story you can think of.

If you like dogs and cats, there’s an ETF that invests in pet-care companies, and ETFs tracking space companies are getting renewed attention after the announcement of the SpaceX IPO. Some ETFs track human vices like smoking, alcohol, weed, etc. You think of a story, and there’s likely an ETF around that theme.

But not all that catches the eye is a worthy investment. By the time you see a thematic ETF giving handsome returns, that theme might have already been in overvalued territory. While it’s a tricky space to navigate, investors seem to be loving it. There are 393 thematic ETFs listed on US exchanges managing $256 billion.

To give you a flavour of what these ETFs could be, here’s a curated walk-through of some interesting themes. None of these is an investment recommendation and consider these a sample of how any investment thesis can be wrapped within a ticker.

The pet care story

PAWZ, the ProShares Pet Care ETF, tracks something close to many people’s hearts – pet care stocks. It holds veterinary diagnostics companies, pet food manufacturers, and speciality retailers across 26 stocks in the US, UK, Canada, and Europe. Its biggest positions include Freshpet, Zoetis, and IDEXX Laboratories.

Americans spent $158 billion on pets in 2025. The story is easy to explain over a dinner table, but the investment thesis is far more nuanced. PAWZ lost 17.66% over the past year. Its three-year annualised return sits at 0.78%, and five-year returns at minus 8.69%.

During the pandemic in 2020-21, the US pet industry witnessed a minor boom. Pet spending surpassed $ 100 billion for the first time. The stocks in PAWZ started getting priced like high-growth technology companies. The market assumed that was the new normal.

It wasn’t. The 2020–21 surge in pet ownership wasn’t entirely organic. Government stimulus payments had temporarily expanded the pool of pet owners. By 2022, nearly one million fewer households had pets. Industry growth in the interim was largely inflation-driven, not volume-driven — input costs like meat were at their peak, which meant higher prices for consumers. PAWZ was priced for exceptional growth, and that exceptional growth didn’t happen.

It did not help that large retailers and e-commerce websites also entered the industry to compete with them. So was it a familiar investment? Yes. But a good one? Probably not.

Broad appeal, bumpy Ride

GAMR tracks the global video game value chain — publishers, GPU makers, gaming platforms, Nvidia, AMD and the like. SOCL holds the world’s biggest social media companies: Meta, Tencent, Alphabet, Reddit, etc. Both have lost money over the past five years — SOCL at −6.71% annually, GAMR at −0.14%. But zoom out to ten years, and the picture shifts. GAMR has returned 13.76% annually. SOCL, 9.38%.

Both funds are extremely volatile. GAMR returned +77.96% in 2020, then +14.65% in 2021, then −36.94% in 2022. SOCL gave +78.18% in 2020, then −12.79% in 2021, then −42.27% in 2022. An investor who put money into SOCL in January 2021 had lost roughly 50% by the end of the following year — not because social media stopped growing, but because Meta and Tencent, the fund’s two largest positions, fell simultaneously.

GAMR in 2022 told a different version of the same story. Global gaming revenue fell 4.3% as the post-pandemic hangover hit publishers hard. One bad year wiped out everything 2021 had built. A single bad year in these funds undoes two or three years of compounding in one move. Most investors typically enter after a strong year, absorb the crash, and exit near the bottom. That’s how a fund with a decent decade-long return produces poor outcomes for most people who actually hold it.

Making good returns here has required a different level of patience to deal with volatility, which most investors don’t have.

Bets on vices. Literally.

YOLO, the AdvisorShares Pure Cannabis ETF, holds US and Canadian cannabis operators. It rose 55.89% over the past year. But its five-year track record is a different story — the fund sits at −31% compared to five years ago. CNBS, the Amplify Seymour Cannabis ETF, tells a similar story: a 76% one-year return alongside a five-year annualised return of roughly −33%.

VICE, the AdvisorShares Vice ETF, takes a broader view — alcohol, tobacco, gambling. It holds Altria, British American Tobacco, and Ambev alongside a casino operator and, somewhat curiously, Nvidia via its gaming exposure. Its one and five-year returns have both been below 2%. But it has a different problem: its AUM is $7.25 million. ETFs typically need $33–40 million to reach break-even, which means VICE may be at high risk of liquidation. And that can happen on short notice.

For an investor holding VICE, when that notice arrives, they receive cash at the price on the liquidation date — regardless of when they had planned to sell. The gains are taxable. And they’re left with the reinvestment problem of figuring out where to put that money next. So it’s not just a low-returns risk. The bigger risk is whether the fund will even survive.

Then there’s the gap between YOLO’s 55% single-year rally and its poor long-term performance. These funds are not really bets on consumer demand — cannabis is already legal for recreational use in 24 states. What they’re actually tracking is the federal story: the law that would make cannabis bankable, normally taxed, and financeable like any other business. That law has not moved. So what you’re investing in is a timeline set by legislators, not markets.

And then the bets that paid

BOTZ, the Global X Robotics and AI ETF, holds the world’s most serious robotics companies — Japanese precision engineering giants like Fanuc and Keyence, Swiss industrial group ABB, and Intuitive Surgical, the company that automates operating theatres. It manages $3.7 billion in assets and has returned 29% over the past year.

QTUM, the Defiance Quantum ETF, goes a step further. It holds roughly 85 companies across quantum hardware, semiconductors, and machine learning — spread thin enough that no single name dominates. Over the past year, it returned 88%. Over five years, it has compounded at roughly 28% annually.

And then there’s UFO, the Procure Space ETF. When it was listed, some publications called it the worst ETF launch of the year. It holds rocket manufacturers, satellite operators, and geospatial data companies. Then SpaceX filed its IPO prospectus with the SEC on May 20, 2026. UFO returned 165% in a single year. Space ETFs pulled in $1.3 billion in a single month. The so-called worst ETF launch of 2019 had become one of the best-performing funds of 2026.

The pattern across all three is interesting. The market is paying the most — and by a significant margin — for the future. And that’s where investors get confused, because it’s not easy to bet on something that might happen.

What thematic ETFs are actually saying

Step back from the nine funds and something becomes clear. Every thematic ETF is a bet on one thing: the match — or mismatch — between what the market believes today and what reality looks like in the future. PAWZ bet that pandemic-era pet spending was the new normal. YOLO bet that federal cannabis reform was imminent. UFO bet that space was investable before anyone believed it was.

Some bets paid off. Some didn’t. Before you think about owning any of these themes, a much deeper analysis may be prudent. A few considerations to keep in mind.

Start with cost. The average thematic ETF charges 0.63% annually, against 0.03% for a plain S&P 500 index fund. That’s a 20x premium for a product that usually underperforms it. Only 5 of 393 thematic ETFs are currently beating the S&P 500.

Then there’s timing. The funds that worked in this piece had one thing in common: they existed before their stories did. UFO stayed mediocre for six years. QTUM was silent for five. Both rewarded patience that most investors don’t have. Investors generally arrive at a theme only after the early returns have already been captured.

Such thematic ETF holdings can also get confusing. For instance, ARK Investment Management’s Space Exploration and Innovation ETF, known as ARKX, which promises to put 80% of its assets in space exploration and innovation, has Netflix as part of its holdings. The logic is that ‘more people might stream video if satellites bring fast internet to rural areas.’

For Indian investors, there’s additional operational overload. Most of these funds aren’t available through Indian mutual fund wrappers, which adds a further layer of complexity — LRS, TCS, Schedule FA reporting, US capital gains rules — making this a high-risk, low-probability option for most retail investors here.

All in all, thematic ETFs are not a gimmick. They’re a price tag on a story. The important part is watching how much that story costs, and how close — or far — it gets from reality. Read them that way, and these funds become a lot more interesting.

ETF return data as of 29/05/2026 via Morningstar