Investment firm makes strong case for green business, deep-tech-themed ETFs
Investors looking at diversifying their portfolio should consider green environment businesses and deep tech technologies-related exchange-traded fund (ETF) themes, including AI, according to a senior executive of a New York-based provider of ETFs.
The remarks by Richard Siaw, Global X director for Southeast Asia, come at a time when global investors, including Thais, are reviewing their year-end portfolios to see if there is a need for rebalancing or tax-loss harvesting opportunities, as well as look for some bright spots to invest in.
Exchange-traded funds (ETFs) trade on exchanges, similar to mutual funds, and generally track a specific index.
In an exclusive interview to The Nation, he explained that given the current global market environment of high volatility, high-interest rates and high inflation, this was a good time to add ETFs to the portfolio.
ETFs are considered low-risk investments as they are inexpensive and hold a diverse portfolio of stocks or other securities, he said.
The funds are an ideal type of asset for most individual investors to build a diversified portfolio, he added.
"For the past 20 years, ETFs have primarily been used for simple investing. If you want to invest in a country you're unfamiliar with, say you want to invest in the United States but don't know how to choose companies to invest in. You simply purchase a US ETF, such as the S&P500, to gain exposure to the country," he explained.
While the Wall Street ETF market has grown significantly, with the latest assets reaching a record US$7.65 trillion in November, according to State Street Global Advisers, Thailand's ETFs remain at the same level as the US two decades ago.
However, Siaw pointed out that investment in such funds in Thailand is on the rise as more Thais understand and appreciate the mechanism of ETFs for portfolio diversification.
In addition, ETFs have evolved into a mature ecosystem with more transparent and innovative structures.
More Thai banks and financial institutions are beginning to offer domestic and international ETFs to their clients.
Siaw, however, cautioned investors to be more wary and selective when purchasing ETFs.
He advised them to focus on green and AI-related themes.
"As the greening of our environmental initiative is very strong, one must do a lot more with clean energy and EV [electronic vehicles]. We see that most countries are rethinking their energy policies, which means they are beginning to make a U-turn and embrace cleaner energy sources," he said.
According to Statista.com, the global green technology and sustainability market is expected to grow between 2022 and 2030.
This market was worth approximately $13.76 billion in 2022. It is expected to reach nearly $62 billion by 2030, with a compounded annual growth rate of 20.8% from 2023 to 2030.
He highlighted AI-related themes like deep tech, cloud computing, and other disruptive technologies, as well as associated hardware and infrastructure.
"The AI and AI ecosystem will grow much bigger than what we just read in the news," he said.
According to Next Move Strategy Consulting, the artificial intelligence (AI) market will grow rapidly over the next decade. Its current value of nearly $100 billion is expected to more than double by 2030, reaching nearly $2 trillion.
Siaw advised investors to include ETFs as a small part of their portfolio.
"I'd just like to share with you a little bit about how thematic investing fits into a portfolio, whether it's an institutional investor, an individual investor, or a high net-worth client. Thematic investing should account for 3-5% of a portfolio," he said.
One reason, he explained, is that thematic investing has a long investment horizon that may or may not move in tandem with market cycles. As a result, investors must consider long-term returns.
Two, some of the companies in the thematic investing portfolio are still in their early stages, so they are small.
He said by investing in a thematic fund, you can gain exposure to these companies while also benefiting from long-term growth. Hence, he believed that 3-5% [of portfolio] is a reasonable recommendation because they are still in the growth phase.