Market Overview

The Rise Of A Quiet Thematic ETF

The Rise Of A Quiet Thematic ETF

The landscape of thematic exchange traded funds, or those funds offering laser focus on specific investment niches and themes, are burgeoning part of the overall ETF universe.

These days, investors can tap themes ranging from artificial intelligence to electric vehicles to quantum computing via dedicated ETFs.

What Happened

It may not be sexy relative to other investment themes, but long-term care is proving rewarding. The OLD - The Long-Term Care ETF (NASDAQ: OLD) is up 14.5 percent year-to-date. On Tuesday, a brutal day for U.S. markets, just 12 ETFs hit record highs. OLD was one of those 12.

OLD, which debuted two and a half years ago, tracks the Solactive Long-Term Care Index. Long-term care is big business and the associated costs are rising throughout the U.S.

“In 2004, the annual cost of care in an assisted living facility averaged $28,800 nationally,” according to 24/7 Wall Street. “By 2018 that cost had ballooned to $48,000, an increase of 67% over the 15-year period. That represents an annual increase of 3.81%.”

Why It's Important

OLD components “include companies owning or operating senior living facilities, nursing services, specialty hospitals or senior housing, as well as biotech companies for age-related illnesses and companies that sell products and services to such facilities,” according to Janus.

OLD isn't a dedicated health care ETF. Rather, the fund allocates almost 65 percent of its weight to real estate stocks, making its 2018 performance all the more impressive when measured against traditional real estate benchmarks and funds. The Dow Jones U.S. Real Estate Index is up less than 3 percent this year.

Health care stocks represent just over a third of OLD's 44 holdings. The earnings growth rate of the fund's components is 27.73 percent, according to issuer data.

What's Next

For now, OLD is overlooked as highlighted by the fund's $8.17 million in assets under management, but fundamentals support additional upside for this product.

From 2010 to 2050, the U.S. population aged 85 and older is expected to undergo a fourfold increase, according to the Census Bureau. By 2024, the long-term care market could be worth over $550 billion.

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