BlackRock says ETFs can provide diversification during economic times

Exchange-traded funds, or ETFs, can provide diversification for your portfolio in today s challenging economic times.

ETFs give investors access to dozens of securities in a single ticker solution, according to Jay Jacobs, BlackRock's U.S. head of thematics and active equity ETFs. By targeting a basket of companies rather than just a few, ETFs diversify risk across a wide range of companies and geographies. Jacobs told FOX Business that it can prove valuable during challenging economic and market environments where concentrated investments could potentially capture greater downside.

At the same time, the ETFs offer the ability to target narrow investment areas that could still benefit during challenging times, while still offering the benefits of diversification, he explained.

Such concentrated investments, for example, are thematic ETFs that target groups of companies that are at the forefront of innovations like robotics, cybersecurity, or clean energy, said Jacobs.

BlackRock released its 2023 thematic outlook that looks at themes within tech, health care and growth sectors, and provides insight for investors to play themes using ETFs.

Jacobs said that the 2023 Thematic Outlook was created to help investors navigate the opportunity, outlining the reasons why we think investment areas like clean energy, electric vehicles, infrastructure, genomics, immunology, neuroscience, robotics, and cybersecurity have strong tailwinds for the year ahead.

Thematic ETFs can be a great way to dip your toe into the market.

Roxanna Islam, VettaFi's associate director of research, said investors can look for larger macro themes or key megatrends among their sectors and look for their current sector preferences.

According to Islam, if an investor likes the auto industry and realizes that regulations are shifting the industry toward clean energy and electric vehicles, they might invest in a future mobility or electric vehicle ETF instead of an auto or transportation ETF. The same applies to the health care sector and biotechnology ETFs. If investors have a few stocks they prefer that share similar growth drivers, they can invest in a thematic ETF instead of buying individual stocks, Islam said.

When asked what the trends for thematic ETFs are for 2023, Islam said she believes that investments related to electric vehicles and e-commerce are among the market sectors that will have increased interest.

As investors realise that regulations are shifting the auto industry towards clean energy and electric vehicles, I think electric future vehicle, battery power and clean energyETFs will continue to grow in popularity. I think e-commerce will see more interest as investors realize that e-commerce isn't just a flu story, and technology will continue to influence both the way consumers shop and the way retailers build their supply chains.