Doubling down on the future: 3 thematic SPDR ETFs with strong growth potential in 2024 and beyond

Have you thought about weaving exchange-traded funds (ETFs) into your trading portfolio?

ETFs are a hot pick in the trading world, bundling a variety of underlying securities into one neat package. Take the traditional ETFs from State Street Global Advisors under the SPDR brand, for instance. They usually mirror the ups and downs of a broad market index like the S&P 500, offering you a slice of the action across multiple industries through just one transaction.

But it doesn’t stop there. SPDR also dishes out thematic ETFs that hone in on particular sectors, technologies, or social trends, taking the basic idea of an ETF and tailoring it to specific interests.

Diving deeper: What is a thematic ETF?

Thematic ETFs were introduced as a strategic option for traders seeking focused exposure to long-term trends and disruptive technologies. Unlike traditional ETFs that track broad market indices, thematic ETFs zero in on specific sectors or themes, such as robotics, clean energy, or e-commerce.

These ETFs first made their mark in the late 1990s and early 2000s, captivating traders with their potential for exceptional returns from transformative trends. By zeroing in on specific industries, trends, or themes – from technology and energy to emerging markets – thematic ETFs offer several key benefits, including:

• targeted exposure
• intra-theme diversification
• access to a wide array of securities within a similar theme.

Three sectors that are worth a look in 2024 are energy, financial services, and technology. Each of these sectors have high potential thematic ETFs under the SPDR banner that could make waves in 2024 and beyond.  

Let’s examine three thematic ETFs relevant to these sectors to help you make more informed trading decisions.

The XLE ETF (Energy Select Sector SPDR Fund)

Since going live in 1998, the XLE has amassed a portfolio of close to USD 38 billion. This has made it the largest investment fund attempting to match the performance of the entire energy sector in the US equities market.

XLE ETF review

Its asset base includes some big names in the oil and gas, consumable fuels, and energy equipment service industries. Notable names in the sector include Exxon Mobil Corp (which account for 21.83% of the fund’s total assets) and Chevron Corp and Eog Resources Inc, which contribute significant percentages of the fund’s total assets.

The ETF has not exactly been on fire over the past year, having shed 3.82% of its value. It is also seen as high-risk, with a beta of 1.26 and a standard deviation of 29.22%. According to some analysts, this is because its holdings include some large cap companies whose shares can be volatile in a sector prone to uncertainty.

The oil and gas sector, however, is rebounding after a period of uncertainty, and the fund also has exposure to clean energy companies – a sector that is expected to grow in huge leaps over the next few years.

This ETF earns a ‘Strong Buy’ rating from Zacks, offering investors a low-cost, high-momentum option with strong potential returns in its asset class.

The XLF ETF (Financial Select Sector SPDR Fund)

Investing in the XLF ETF means taking a chance on the health of the financial sector of the S&P 500 – which includes banks, asset managers, and insurance firms. The ETF has a close to USD 37 billion in assets under management, and is the largest ETF attempting to track the broad financial sector in US equity markets.

XLF ETF review

The annual operating costs for the XLF are 0.10%, making it one of the least costly investing products in the sector, considering its annual trailing dividend yield stands at 1.57%. It also had a decent past year, with a return of around 12% in 2023.

Some of its top holdings include Warren Buffet’s Berkshire Hathaway Inc which holds 13.4% of total assets, followed by JPMorgan Chase and Visa Inc with 9.65% and 8.11% in total assets respectively.

According to some analysts, the banking sector’s future could partly be shaped by the regulatory environment around artificial intelligence (AI) and cryptocurrency. With a beta of 1.02 and a standard deviation of 20.15% for the trailing three-year period, the ETF is seen as a medium risk asset in a growing sector.

A 2022 Statista report indicated that the US financial sector was set to grow by about 11.46% annually between then and 2027 – meaning a revenue jump from USD 580.10 million in 2022, to about USD 1.08 billion by 2027.

The ETF has a Zacks ranking of 1 (strong buy) due to the asset’s expense ratio, momentum, and expected asset class return, among other factors – making it a decent option for traders.

The XLK (Technology Select Sector SPDR Fund)

The XLK ETF gives traders exposure to the broader sector of the US technology market – with assets in IT, electronics, semiconductor, and software companies in the mix. It is the largest ETF attempting to match the broader US technology equities market, amassing an asset portfolio of USD 67 billion.

XLK ETF review

Its annual operating costs stand at 0.10% against a trailing dividend yield of 0.71%, which makes the cost quite reasonable and one of the lowest in the sector.  The XLK has a beta of 1.14 and a standard deviation of 24.42%, and is categorised as medium risk in a sector that has been highly volatile at times.

Trading on this ETF means taking a chance on some of the hottest blue chip brands of our time, with companies like Salesforce Inc, Nvidia Corp, and Apple Inc among its top holdings. Microsoft Corp accounts for 23% of its holdings, with Apple Inc and Nvidia Corp accounting for 18.15% and 7.44% respectively. Other top holdings include Broadcom at 5.37% and Salesforce Inc at 2.96%.

With the tech industry making a comeback after a post-pandemic slump, some analysts are predicting a protracted period of gains as the AI arms race heats up. Its favourable expense ratio, positive momentum, and promising expected asset class return, among other factors, underscore the asset’s impressive Zacks ranking of 1 (Strong Buy).”

How to trade the best thematic ETFs in 2024

All three ETFs are available on Deriv. You can get involved by speculating on the price of these ETFs with a Deriv MT5 account. It offers a list of technical indicators that can be employed to analyse ETF prices. Log in now to take advantage of the indicators, or sign up for a free demo account. The demo account comes with USD 10,000 in virtual funds so you can practise analysing trends risk-free.