Remote work trend drives performance of thematic ETFs

As the COVID-19 pandemic heads toward fall and beyond with no vaccine or realistic end in sight, the ripple effects across the economy are presenting some interesting new investment opportunities.

While it might be difficult to pick the winner among the potential vaccine and treatment developers in the medical and scientific communities, the current and longer-term realities of working from home are already measurable.

A tip of the hat to Direxion for its clever and timely Work From Home ETF (WFH), which combines exposure to remote work enabling companies involved in cloud computing, cyber security, remote communications and various online projects.

The fund has grown to $27 million and gained 4.7% since its June 25 launch. Over the same period, the S&P 500 Index rose 9.7%.

For advisers looking for a more targeted approach to what is expected to be a long-term theme of remote work, Todd Rosenbluth, director of mutual fund and exchange-traded fund research at CFRA, has narrowed the list of recent winners.

In the area of cloud computing, which will continue to gain appeal as more companies embrace remote work as a permanent model for many employees, three funds stand out. WisdomTree Cloud Computing (WCLD) has gained 53% this year, Global X Cloud Computing (CLOU) is up 38%, and First Trust Cloud Computing (SKYY) is up 26%. The S&P 500 has risen 3.8% so far this year.

In the cybersecurity space, Rosenbluth highlighted four standouts. Global X Cybersecurity (BUG) is up 31% this year, iShares Cybersecurity and Tech (IHAK) has gained 23%, ETFMG Prime Cyber Security (HACK) is up 19%, and First Trust Nasdaq Cybersecurity (CIBR) is up 18%.

While he would always support the prospectus warning that past performance is not necessarily an indication of future returns, the targeted themes of cybersecurity and cloud computing are not temporary, Rosenbluth said.

“These are multiyear themes because the need for companies to spend part of their technology budgets on these subsets of technology sped up when we started working from home,” he said. “And even when we go back to the office, these trends won’t disappear. The sense we have is that people working from home and companies giving employees the option to work from home will have legs for years to come.”