I think exchange-traded funds (ETFs) are a fantastic way to build long-term wealth. Particularly low-cost, broad-based ETFs listed on the ASX.
These broad-based ETFs sit at the heart of my core portfolio. But I think thematic ETFs can play a part when it comes to satellite or tactical positions, which are riskier and form smaller parts of my portfolio.
While the space is getting crowded and some thematic ETFs seem particularly niche, there is a handful I have my eye on.
Here are two thematic ASX ETFs I'd buy today. In fact, one of them is already sitting in my portfolio.
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BetaShares Global Cybersecurity ETF (ASX: HACK)
Starting with the one I own, the BetaShares Global Cybersecurity ETF is a simple way to get exposure to the cybersecurity theme here on the ASX.
The cybersecurity industry has been growing in prominence for years. But it's now hurtling along a COVID-accelerated trajectory as things like cloud computing and remote working have come to the fore.
According to the Identity Theft Resource Center, the number of new data breaches set a new record in 2021, soaring 68% over the number of incidents seen in 2020.
Consulting firm Gartner forecasts that information security spending will reach US$187 billion in 2023, representing 11% growth.
As security budgets continue to rise and the world only becomes even more connected, cybersecurity will likely be a high-growth industry for years to come.
And like any high-growth industry, there'll be various winners and losers.
Rather than selecting which individual companies to invest in, this ETF provides investors with a basket of leading companies involved in cybersecurity.
The ETF has 38 holdings, the majority of which are listed in the United States. Right now, the top holdings include Crowdstrike Holdings Inc (NASDAQ: CRWD), Cloudflare Inc (NYSE: NET), and Cisco Systems Inc (NASDAQ: CSCO).
These companies operate across the spectrum of cybersecurity, from virus protection and intrusion detection to computer networking equipment, identity management, content delivery networks, and more.
As a growth-focused ETF, the year hasn't been particularly kind. Over the past 12 months, the ETF is printing an 11.4% fall (including dividends). But over the last three years, it has delivered an average return of 14.9%.
It's worth noting that as a thematic ETF, its management fee comes in on the higher side at 0.67%.
VanEck Video Gaming and Esports ETF (ASX: ESPO)
As its name suggests, this VanEck ETF provides investors with exposure to the video gaming and esports thematic.
After once being stereotyped as being isolating and unsociable, gaming has levelled up. And it's an industry that's becoming increasingly hard to ignore, especially in the attention economy we live in.
Last year, the number of gamers worldwide surpassed three billion. And the audience for live-streamed gaming content continued to grow, with 747 million people tuning in to watch their favourite gamers on platforms like Twitch and YouTube.
According to research firm Newzoo, the global games market generated revenue of US$181 billion in 2021. It's tipping this figure to reach US$218.8 billion in 2024.
Meanwhile, esports continues to take on a life of its own. Last year's League of Legends World Championship racked up more than one billion total hours of viewership. And the finals series garnered a peak audience of 73 million people.
The ETF comprises 25 holdings and aims to track an index that includes the largest and most liquid companies that generate at least 50% of their revenue from video gaming and/or esports.
As it stands, the ETF has key weightings to the US (42%), Japan (22%), and China (16%).
The top holdings include chip company NVIDIA Corporation (NASDAQ: NVDA), Call of Duty publisher Activision Blizzard Inc (NASDAQ: ATVI), and Chinese conglomerate Tencent Holdings Ltd (HKG: 0700).
The ETF has tumbled 27.6% over the last 12 months as many of its top holdings have been smashed, showing the downsides of being a rather concentrated ETF. But zooming out, the index that this ETF tracks has delivered an average annual return of 16.1% across the last three years.
At 0.55%, the ETF attracts lower management fees than the BetaShares Global Cybersecurity ETF.
