From AI to Energy, ‘Thematic’ ETFs Make It Easy to Invest in Hot Market Trends

Over the past several years, the investment landscape has undergone a seismic shift. The number of exchange-traded funds, or ETFs, listed on U.S. exchanges has officially surpassed the number of individual stocks.

Today, there are about 4,630 ETFs compared to 4,200 individual stocks. These funds pool investors’ money while offering baskets of securities — like stocks, bonds or commodities — that provide broad or targeted exposure to industries, stock market sectors, indices or specific themes. ETFs generally carry lower fees and better liquidity than their mutual fund counterparts, increasing their appeal for everyday investors.

As a result, it’s easier than ever to use thematic ETFs to participate in emerging and growing market trends.

“Some of these ETFs have been sliced pretty [specifically] in terms of what the underlying exposure is,” says Kevin Grogan, chief investment officer of systematic strategies at Focus Partners. “For investors that want an active tilt towards specific sectors, it’s good to have those options available.”

Here are three current market trends that thematic ETFs can provide exposure to.

AI data center infrastructure ETFs

AI has taken the world by storm. But attempting to identify the potential winners in the race is a speculative proposition. Thematic ETFs allow investors to capitalize on specific structural market changes that align with AI’s rapid growth, including substantial demand for data center infrastructure.

While the Magnificent Seven and pure-play AI stocks often steal the spotlight, demand for the physical and digital structures and facilities necessary to support AI development has evolved into a megatrend of its own. According to Grand View Research, the data center infrastructure management market is forecast to grow at a compound annual growth rate of 19.5% from 2026 to 2033.

The trend offers an abundance of pick-and-shovel opportunities, meaning you invest in companies that provide the equipment or support services for a booming industry. Funds like the Global X Data Center & Digital Infrastructure ETF (DTCR) — which invests in data center companies, real estate investment trusts and digital infrastructure hardware companies — can be used to add small allocations to the data center infrastructure trend while supplementing a portfolio’s core allocations.

Grogan cautions investors  to not over-allocate, suggesting instead that thematic ETFs be viewed as part of a holistic investment strategy.

“We would advise to not look at any investment in isolation,” he says. “You want to consider how adding something to your portfolio will affect [it] overall.”

But advisory firm Gartner has forecasted data center spending to surpass $650 billion in 2026, with VP analyst John-David Lovelock, noting that “AI infrastructure growth remains rapid despite concerns about an AI bubble, with spending rising across AI‑related hardware and software.”

The DTCR’s performance has reflected that. The fund has gained 25% this year and 79% over the past year. By comparison, the S&P 500’s year-to-date gain is just 4%, and over the past year, the index is up 33%. While thematic ETFs shouldn’t be the focal point of long-term portfolios, the DTCR demonstrates how they can be used to hedge against broad index underperformance.

Energy ETFs

The Iran war and the closure of the Strait of Hormuz have resulted in the fastest increases to oil and gas prices in history. That price escalation was so pronounced that even if the current ceasefire is extended or a permanent end to the conflict is reached in the near future, it’s unlikely that inflated prices at the pump will subside any time soon.

“This goes to the old adage that gas prices go up like a rocket and fall like a feather,” Mark Zandi, chief economist at Moody’s Analytics, previously told Money.

On Friday, Iran announced the reopening of the strait for the duration of another ceasefire between Israel and Lebanon. That may provide short-term relief, but prices are likely to remain elevated as considerable energy infrastructure has been destroyed in the conflict.

With continued global supply constraint, there’s likely more upside for energy ETFs after the headlines of the strait’s reopening subside.

According to the International Energy Agency’s Oil Market Report, which was released before the strait’s reopening, “demand destruction will spread as [oil, natural gas and jet fuel] scarcity and higher prices persist.” But the report also notes that the resumption of flows through the Strait of Hormuz “remains the single most important variable in easing the pressure on energy supplies, prices and the global economy.”

While resumed shipping through the Strait of Hormuz is providing some price relief, oil is still trading 28% higher than it was when the war began. That bodes well for energy ETFs that sold off on the reopening news, like the Vanguard Energy ETF (VDE), whose portfolio includes integrated oil majors like ExxonMobil, Chevron and ConocoPhillips. That fund gained 38% this year before a healthy and overdue pullback, but analysts’ price targets suggest potential double-digit gains in the year ahead.

Small-cap ETFs

Companies like Nvidia have grown so large that they now dominate the major indices’ market-cap weightings. For every dollar invested in an S&P 500 index fund, approximately 38 cents is allocated to just the top 10 holdings, leaving the rest to be spread across the remaining 490 companies. Another limitation of market-weighted large-cap funds is that they don’t offer exposure to smaller companies that potentially carry higher upside.

The Russell 2000, an index made up of 2,000 small-cap U.S. companies, has gained 11% versus the S&P 500’s 4%. Over the past year, it has gained 48% versus the S&P 500’s 35%.

However, while investors can use Russell 2000 index funds to gain broad small-cap exposure, they’ll still have to contend with more expensive or lower-quality small-cap companies. In this case, Grogan says targeted small-cap exposure is a better strategy. To achieve that, he recommends actively managed funds offered by asset managers like Bridgeway Capital Management that specifically target value opportunities.

“If you control for the lower quality companies — the companies that have very low profitability or just a lot of variability in their earnings — if you screen out those companies, you tend to do even better with value stocks,” he says.

An example of that is the actively managed EA Bridgeway Omni Small-Cap Value ETF (BSVO), which has gained 16% this year and 54% over the past year by identifying small-cap stocks that are underpriced given their financial metrics.

While those gains have been rewarding, Grogan says that investing in small caps is ideally part of a long-term strategy.

“Five, 10-plus years out, I would expect smaller-cap and more value-oriented companies to outperform,” he says. “But over shorter horizons, [returns] are just too noisy to make really accurate predictions.”