Global flows into exchange-traded products (ETP) fell slightly during May compared to the previous month, according to analysis from asset manager BlackRock.

Purchases of ETPs – which mostly comprise exchange-traded funds (ETFs) as well as some similar products – fell to $199.4 billion in May, from $212.4 billion the previous month.

The dip was driven mostly by a sharp fall in equity fund inflows, which dropped to $106.4 billion – the lowest month for global equity ETP inflows since January.

Similarly, analysis from investment research firm Morningstar found that European ETF and ETC flows fell from €40.2 billion in April to €38.0 billion in May.

“Investor demand for ETFs remained resilient in May, even as flows moderated slightly from April’s peak,” said Jose Garcia-Zarate, senior principal at Morningstar. “Equities continued to dominate allocations, supported by strong market performance and sustained interest in US exposure.”

Which ETP sectors saw the largest flows during May?

Recent analysis of the most popular funds and stocks with DIY investors on Interactive Investor revealed a split between cautious strategies and risk-seekers, a trend also borne out by BlackRock’s analysis.

While fixed-income ETPs recorded their largest month of inflows on record ($87.7 billion), suggesting a cautious market, within equity ETPs technology was the most popular sector, attracting $14.4 billion of inflows.

Besides tech, the only sectors to record meaningful inflows were industrials ($2.7 billion) and energy ($1.5 billion), according to BlackRock.

Morningstar’s data also pointed towards high demand for tech ETFs. Garcia-Zarate attributed much of this demand to the forthcoming SpaceX IPO.

“VanEck Space Innovators ETF (LON:JEDG) [was] among the top 10 flow-gathering ETFs in May,” he said.

Unsurprisingly given the demand for tech-focused ETFs, funds targeting the US saw the largest inflows. Of regionally focused ETPs, BlackRock’s analysis found only those targeting the US received positive flows – and even these dipped to $103.3 billion, from $121.9 billion in April.

Emerging market equity ETPs saw monthly outflows of $40.4 billion, the largest negative flows of any region’s ETPs.

Selling (or “writing”) options on a portfolio to generate income has become more popular over the past two decades. The strategy took off in the zero-interest-rate era following the global financial crisis and got another boost when central banks took interest rates below zero again in the pandemic.

Investors collect a premium when they write call options on their existing shareholdings (known as “covered calls”). The logic is simple: you can earn ongoing income from a stock you already own if it doesn't pay a dividend and pick up an extra bonus even if it does. However, trading options is a complex business and can be costly if you don't know what you're doing. So there have been many attempts to create products that let individual investors use this strategy in a simpler way. These include premium-income ETFs – exchange-traded funds that hold a portfolio of stocks, write options on them and (typically) pay monthly distributions from the proceeds.

Premium-income ETFs have begun to hit the mainstream in the UK. The JPMorgan Global Equity Premium Income Active ETF (LSE: JEGP) and the JPMorgan Nasdaq Equity Premium Income Active ETF (LSE: JEQP) have over £1 billion and £2 billion in assets, respectively, while the Global X Nasdaq 100 Covered Call ETF (LSE: QYLP) has amassed around £0.5 billion.

There is also a fast-growing range of smaller products. In total, European investors have access to 57 such ETFs, according to ETF data provider ETFGI. Assets under management stood at $5.6 billion at the end of March after year-to-date inflows of nearly $1 billion.

A different approach with premium-income ETFs

Trailing yields on the most popular premium-income ETFs range from 7.7% for the JPMorgan US Equity Premium Income Active ETF (LSE: JEIP) to 11.5% for QYLP. This is much higher than the yield on a typical high-yield ETF and reflects a very different strategy.

“Option-income ETFs generate income through writing call options on stocks they hold as well as the dividend income, which is usually much lower than the options income,” notes Tom Bailey of HANetf, the ETF platform that issues the YieldMax and Rex covered-call ETFs. So while a dividend-income fund can only own stocks that meet certain yield criteria, a premium-income ETF selects stocks on their potential to earn high options premiums.

The need for liquid options markets pushes these premium-income ETFs into larger and more liquid equities, but usually different ones from a typical income fund. “Highyield ETFs often hold energy, utilities, consumer staples and other reliable dividend payers. Premium-income ETFs, by contrast, will often hold technology stocks,” says Bailey. This can provide investors with a degree of diversification in their income portfolios that they may otherwise have rejected due to a lack of dividend yield.

Premium-income ETFs aren't a replacement for income funds

Investors shouldn't view premium-income ETFs as a simple replacement for income funds. Dividend stocks tend to be less volatile than other equities, which translates into lower volatility for your portfolio value. Tech stocks are far more volatile, so while they may help the fund generate more income, that will come at the expense of bigger swings in the portfolio.

What's more, selling call options on the underlying asset means that premium-income ETFs cap equity upside (if a stock goes up a lot, the option buyer will exercise their right to buy the stock from you). So investors are trading off a few percentage points of long-term capital gains every year for immediate income returns.

Note, too, that income is not guaranteed. Options prices are volatile and depend on multiple factors: premiums and income generated will spike in periods of volatility and fall when markets are calm. For example, YieldMax Big Tech Option Income ETF (LSE: YMAP) is on a trailing yield of 27%, but that depends on high volatility in tech. Managers can sell more options to enhance the income, but that would increase leverage and risk. However, despite these drawbacks, there's clearly a growing market for these funds.

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The MoneyWeek ETF portfolio – which we have been running in one form or another since 2013 – is designed to be a very simple way to invest. It doesn't try to time the market, forecast the economy or pick specific stocks. It simply holds a diversified set of exchange-traded funds (ETFs) that complement each other, tilted towards the areas that we think offer the best value.

In any given year, some holdings are likely to do much better than others. Over time, the portfolio will drift away from its target weights. So once a year, we rebalance the holdings back to their target. For simplicity we usually do this at the start of a new tax year: this means that an investor could use the new tax year's contributions to an individual savings account (ISA) or pension to carry out the rebalancing.

The past year has been an eventful one, yet the MoneyWeek ETF portfolio is up by 25% – a much higher return than we would expect. That reflects strong performance from several positions. Gold is up 50% in sterling terms, even after slipping from its highs. More recently, the energy sector has done very well, up 58%. Emerging markets (up 42%) and Japan (up 38%) have been boosted by investors diversifying away from the US – although this has reversed a bit since the beginning of March. At the other end of the scale, bonds have been weak, although we have focused on short-dated bonds and so our holdings are more or less flat over the year.

The MoneyWeek ETF portfolio reset

As a result, many of the MoneyWeek ETF portfolio weights will be quite far from target this time. The exact position will be different for every investor, but gold and emerging markets are both around two percentage points overweight in our tracked portfolio and most of the other holdings are around one percentage point underweight.

To minimise costs, our rule is not to rebalance any position that is only a small distance away from its target. Fiddling with small overweights and underweights incurs trading costs for no benefit. However, since this year will require quite a lot of trades in the tracked portfolio, we are going to reset all positions to target weights.

We are also going to make one change. We have been holding iShares $ Treasury Bond 3-7 Years GBP Hedged (LSE: CBUG), on the basis that we were most likely to see short-term interest-rate cuts, but volatility in longer-term bonds. However, the prospect for large cuts seems to be receding. Meanwhile, the risks of higher inflation are rising – it could easily top 3% again over the next year. In this scenario, the 4% nominal yield from CBUG looks less compelling than the 0.9% real yield from iShares $ TIPS 0-5 GBP Hedged (LSE: TI5G). We could increase our exposure to inflation-linked bonds, but there is also a case for adding more growth to the MoneyWeek ETF portfolio. So we will temporarily hold this as uninvested cash while waiting to see if the Middle East ceasefire holds.

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Flows into European-listed exchange-traded funds slowed in March, having posted a strong first two months of the year.

Investors considering where to invest had been pouring money into European exchange-traded funds (ETFs) in January and February, with net flows in each of these two months reaching €46.8 billion and €45.4 billion respectively, according to data from Morningstar.

However, this slowed to just €9.4 billion in March, with the conflict in the Middle East seemingly deterring investors from putting their money into European ETFs.

“After two very strong months, March marked a clear shift in investor behaviour,” said Jose Garcia-Zarate, senior principal at investment analysis platform Morningstar Direct. “As geopolitical tensions in the Middle East intensified and market volatility increased, investors became more cautious, pulling back from broad equity and fixed-income exposure.”

This caution was reflected in the top stocks and funds that DIY investors bought during the month of March.

Which European ETFs are attracting flows?

The predominant stance among investors during March was one of caution, but ETFs in some sectors still saw inflows.

“We saw selective interest in areas such as energy, but overall, investors sat firmly on the sidelines and prioritised liquidity and flexibility over making large directional bets,” said Garcia-Zarate.

Much of the monthly decline in flows was due to a sharp reduction in flows into equity ETFs; these fell from €40 billion in February to €8.8 billion in March.

Flows into European ETFs tracking bonds turned negative during the month, registering net flows of -€2.4 billion, compared to inflows of €5.2 billion in February and €8.8 billion in January. This was attributed to inflationary concerns weighing on credit and emerging market debt.

How did European equities perform in March?

Data from BlackRock suggests that, while European ETF flows overall dipped during March, ETFs tracking European stocks were actually among the most popular.

Among exchange-traded products (ETPs – the broad category of funds that ETFs belong to and constitute the majority of) listed in the EMEA (Europe, Middle East and Asia) region, those focused on European equities registered $3.9 billion of inflows – compared to outflows from those focused on US stocks (-$0.7 billion), Japanese stocks (-$0.6 billion) and emerging market stocks (-$0.3 billion).

BlackRock’s data also supported the view that ETF investors put their money into energy funds last month in a bid to profit from higher oil prices, with EMEA-listed energy sector ETP flows rising to their highest level on record ($2.2 billion).

The geographical balance of ETF flows doesn’t reflect the performance of respective stock market indices. The MSCI Europe index, which tracks large- and mid-cap stocks in Europe, fell 9.8% in the month to 31 March, compared to a 6.3% drop in the MSCI World index (which tracks global stocks) and a 4.9% fall in the MSCI USA index.

In other words, while ETFs tracking European equities saw greater flows than those tracking other regions, the continent’s stocks actually underperformed compared to global competitors in terms of price changes.

Saba Capital Management (Saba), the New York-based activist hedge fund that has shaken the UK’s investment trust sector over the last year and a half, has launched a product enabling investors to buy into its strategy.

Saba, in partnership with exchange-traded fund (ETF) white-labeller HANetf, launched the Saba Capital Investment Trusts UCITS ETF (LON:UKIT) on 5 March.

This actively-managed ETF will hold UK-domiciled investment trusts trading at a discount to net asset value (NAV), similar to those that Saba has targeted since November 2024.

“Saba brings deep expertise in the investment trust and closed-end fund universe, with a long track record of identifying opportunities created by discounts to NAV and corporate actions within the sector,” said Hector McNeil, co-founder and co-CEO of HANetf.

As an activist investor, Saba’s strategy revolves around building a stake in discounted closed-ended funds and then pushing for corporate actions that will narrow the trust’s discount in the short term. This is known as closed-ended fund arbitrage.

The ETF will be managed by Saba’s founder and CIO Boaz Weinstein as well as partner and portfolio manager Paul Kazarian.

“The £250 billion-plus UK investment trust sector is undergoing a fundamental realignment, with renewed attention on narrowing discounts creating an ideal environment for a trust-focused active ETF,” said Weinstein. “We designed UKIT to help investors capitalise on this shifting landscape – empowering investors to profit from discounts to NAV, rather than suffer from them.”

Which investment trusts does Saba’s ETF hold?

As of 5 March, the top three non-cash holdings in Saba’s investment trust-focused ETF were IP Group PLC (LON:IPO), an investment company that invests in technologically and scientifically innovative businesses; biotech-focused investment trust Syncona (LON:SYNC); and private equity investment trust Harbourvest (LON:HVPE).

UKIT’s fourth-largest holding was Edinburgh Worldwide (LON:EWI), the growth-focused investment trust whose board Saba attempted to displace earlier this year, as well as at the start of 2025.

The ETF also holds Allianz Technology Trust (LON:ATT), in which Saba disclosed a 4.9% stake on 5 March, as well as Unite Group (LON:UTG), Pantheon International (LON:PIN), Henderson Smaller Companies (LON:HSL), Montanaro European Smaller Companies (LON:MTE), Polar Capital Technology (LON:PCT), Baillie Gifford Japan (LON:BGFD), Brown Advisory US Smaller Companies (LON:BASC), Bankers Investment Trust (LON:BNKR), Scottish American (LON:SAIN) and Schroder UK Mid Cap Fund (LON:SCP).

As of 5 March, 55% of UKIT’s assets were held in cash.

If you’re looking to add an actively-managed fund to your portfolio, you might instinctively look at mutual funds or investment trusts.

Few investors consider actively-managed exchange-traded funds (ETFs), and ETFs are often – inaccurately – viewed as a byword for passive products.

But active ETFs can be a simple, convenient way to add an active management strategy to your portfolio.

Compared with their passive counterparts, active ETFs carry the same pros and cons as most active funds: they have the potential to outperform their benchmark index through the skill of their manager. But this is not guaranteed, and they can underperform benchmarks. Whatever happens, they also tend to be more expensive than passive funds.

Compared to a mutual fund or investment trust, active ETFs can offer greater convenience.

“You can keep all your portfolio in one place,” Hector McNeil, co-founder and co-CEO at ETF white-labeller HANetf, told MoneyWeek. “If you’ve got gold ETFs, equity ETFs or bond ETFs in a DIY portfolio in your ISA or your Sipp, it's very straightforward and cost-effective.”

Transparency and intra-day trading, meanwhile, are among the key advantages that ETFs offer over other types of fund.

“Compared to traditional mutual funds, ETFs are a more efficient and transparent wrapper as they trade on exchanges, provide intraday liquidity (instead of once a day at the end of the day) [and] are more transparent [because] it is possible to see the constituents daily instead of monthly or quarterly,” said Pierre Debru, head of research, Europe at ETF issuer WisdomTree.

These advantages are reflected in increased demand for active ETFs. According to ETFBook data from HANetf, European active ETFs’ assets under management (AUM) increased 87% in 2025, beating 2024’s 68% growth and hitting a record $96.3 billion.

Clearly, lots of investors see advantages in buying active ETFs. But what are they, and are they the right option for you?

How do active ETFs work?

An active ETF is simply an active strategy held within the ETF wrapper. An active strategy is one where a portfolio manager actively picks which assets to buy and sell into a fund, whereas a passive strategy mirrors an index like the FTSE 100 or the S&P 500.

As Debru explains, there is something of a spectrum of how ‘active’ an ETF can be.

“Non-active ETFs track an index (by definition), but they don’t have to track a market-cap weighted index,” Debru tells MoneyWeek. “Thousands of indices are now available, ranging from market-cap-weighted to the most advanced systematic quantitative strategies. Even very complex strategies can be explained in an index.”

Examples of ETFs that fall into this category are the WisdomTree Europe Equity Income UCITS ETF (LON:EEI) or the WisdomTree Japan Equity UCITS ETF (LON:DXJG), both of which track proprietary indices that follow rules-based approaches to investing in these geographies.

“The only strategies that cannot be described in an index are active stock-picking strategies, in which a portfolio manager decides daily which stocks to include in the portfolio,” Debru adds.

This means that a large amount of the index-based ETFs people invest in, which are technically categorised as passive, will actually reflect a much more refined investment strategy than conventional index investing.

On the other hand, there are what some people call ‘shy active’ ETFs that, while technically actively-managed, broadly track an index. JPMorgan UK Equity Core Active UCITS ETF (LON:JUKC), for example, is managed by a team of portfolio managers that have the discretion to under- or over-invest in certain stocks, but it broadly tracks the FTSE All-Share Index.

Is an active ETF right for you?

Whether or not an active ETF is right for you depends on your personal circumstances and the current composition of your portfolio. But if there is an active strategy that you are thinking of adding to your portfolio, then an active ETF could be the simplest way to achieve it.

The active versus passive debate is ongoing, and much data suggests that active strategies tend to underperform passive equivalents.

However, as McNeil explains, there are some sectors where taking an active approach makes more sense.

“Asset classes that are a little bit more esoteric, like catastrophe bonds or emerging markets or small caps… I would much prefer an active manager in [those spaces] than an index,” he said.

As active ETFs typically carry higher fees than passive ETFs, it is also important to establish that the strategy’s performance warrants this extra cost. It is worth looking back over their three-year track record to ensure that the ETF beats its own comparative benchmark, or another passive index that represents the sector or theme you’re considering investing in, before committing to the higher fees.

Active ETFs to consider for your portfolio

To give you an idea of the kinds of active strategies that ETFs can cover, here are three active ETFs that you could consider for your portfolio:

• Fidelity US Equity Research Enhanced UCITS ETF (LON:FUSS) which picks predominantly US-based stocks. It generated annualised returns of 16.5% in the three years to 17 February, compared to 13.0% for its benchmark (US Large-Cap Blend Equity).
• Invesco Global Active ESG Equity UCITS ETF (LON:IQSS) which picks ESG-screened stocks based on their value, quality and momentum factors. It returned 77.9% in the three years to 31 January, compared to 69.9% for its benchmark, the MSCI World Index.
• Guinness Sustainable Energy UCITS ETF (LON:CLMP), which invests in companies its managers think will benefit from the growth opportunities in the energy transition over the next 20 years. It gained 29.2% in the 12 months to 17 February.

There have been no changes to our exchange-traded fund (ETF) portfolio since April, which is in line with our goal of changing it as rarely as we can. The MoneyWeek ETF portfolio has done what we want: it held up well during the US tariff shock in April (down around 7% at worst) and rebounded as markets rallied, ending the year up by 14.5%.

We were helped by our 10% position in gold, which has been extremely strong, but also by better performance of the rest of the world versus America. Within the core equity part of the portfolio, we have equal amounts in the US, Europe, Japan and emerging markets. Implicitly, this means we are very underweight America (US stocks are about 65% of the MSCI ACWI global benchmark) compared with most portfolios. This has been a huge drag on returns in recent years, but began to work in our favour in 2025.

That said, the switch from a regular S&P 500 ETF into an equal-weighted fund in March has not paid off. We think that this decision – which reduces how concentrated our US exposure is in the tech giants – is the right medium-term call, but clearly we moved too early and would have been better off in the original fund last year.

The bond conundrum in our ETF portfolio

European real estate (including UK) is showing some tentative signs of recovery and our decision to narrow our real-estate focus accordingly paid off so far. The ETF we now hold has outperformed the global one that we held previously (which is heavily weighted towards the US) and we continue to prefer the higher yield that it offers.

We hold an energy ETF not because we are especially bullish on oil, but because we think there are risks of both short-term shocks and longer-term underinvestment, and that one of the most likely triggers for sustained inflation is through energy costs. Given that energy stocks appear fairly cheap, it still seems like a attractively priced hedge against these risks.

Our bond investments are concentrated in shorter-dated bonds because we don’t think that longer-dated ones offer enough compensation for the extra fiscal and political risks. Our holdings are in US government bonds, but this is partly because the selection of ETFs currently available gives us much more granular choice for US bonds than for UK ones. However, we are now using bond ETFs that hedge the currency exposure back to sterling because we think the outlook for the dollar has become much more risky and there is no longer much benefit in having unhedged dollar bond exposure.

This is the part of the portfolio that looks most troublesome in many ways. There’s little value in bonds already and a strong chance that interest rates come down even more than investors expect (especially in the US). That would further reduce the yields available on bonds. So at some point in 2026, we may have to overhaul our bond positions – but not yet.

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It has been a busy year for large companies’ IT departments. Firms ranging from Marks & Spencer to Jaguar Land Rover (JLR) have seen their operations disrupted by cyberattacks. The incident at Jaguar is thought to have cost Tata (JLR’s owners) just under £2 billion. While not a cyberattack, the outage at Amazon Web Services in October also brought swathes of the internet to a halt, demonstrating that “when a single upstream provider experiences issues, the impact doesn’t stay contained; it cascades across industries”, says Fadl Mantash, chief information security officer of global pay-tech company Tribe Payments. Such cases are just the “tip of the iceberg”, according to Jonathan Frost, director of global advisory for EMEA at BioCatch. No wonder, then, that companies providing cybersecurity and resilience services are in demand.

Why cybersecurity is more important now than ever

The main reason cybersecurity and cyberresilience are so important now is that “an increasing amount of life is conducted online, with almost all our devices connected, in some way, including vacuum cleaners and washing machines”, says Marijus Briedis, chief technology officer at NordVPN. However, while people “still don’t fully realise how much data they are sharing and how much connectivity is happening”, there is a growing awareness that “they have to take care with their online activity and need some protection from the various threats… out there”.

This is particularly true of the post-Covid business world, “where people are increasingly working away from the office”, says Kate Steele, partner in the commercial dispute resolution team at Hill Dickinson. As a result, companies “are relying much more on technology, both in terms of remote working systems, but also things like AI”. And “all the various crime statistics suggest that there has been a huge increase year on year in every type of cybercrime, from data theft to online scams”, says Steele.

BioCatch’s Jonathan Frost, who previously worked at the City of London Police, notes that in the 2025 National Crime Survey, 1% of all UK companies said they had been victims of ransomware, where servers are hijacked, legitimate users locked out and then cash demanded to hand back control. While 1% may not seem much, “this works out to 19,000 firms across Britain, and represents a doubling of attacks since 2024”.

What’s more, companies may not have a choice as to whether they protect themselves, says Hill Dickinson’s Kate Steele. This is because governments and regulators are now recognising “that companies need to take action to defend themselves, as such attacks not only harm them, but also hurt their customers, employees and other people in their care”. Witness the UK’s Cyber Security and Resilience (Network and Information Systems) Bill, currently going through Parliament, “which places an obligation on critical sectors to report major incidents within 24 hours, with large fines if they don’t”.

It’s not surprising, then, that over the last five to 10 years, discussions about such cyberthreats are no longer “the background conversation that only took place in certain industries and businesses”, says Brendan Gulston, co-manager of the WS Gresham House UK Multi Cap Income Fund. Instead, cybersecurity is “a board level discussion that is mentioned in almost every annual report of most of most businesses, irrespective of industry”, says Gulston. Overall, data from accountants PwC suggests that around 85% of businesses expect their cyber budgets to increase over the next 12 months, says Zain Javid, cofounder and chief technical officer of Citation Cyber.

The three key threats to cybersecurity

NordVPN’s Briedis thinks the increasing number of threats stem from three main sources. There are the so-called “script-kiddies”, the kids “playing around the internet and trying to figure out how to hack your neighbour”. However, there is also an increasing threat from cybercriminals, many linked to organised crime, who are targeting companies. They typically either try to steal commercially sensitive data or launch ransomware attacks.

Even worse, “in a growing number of cases many countries now have their own cybersecurity groups that specialise in carrying out attacks”, says Briedis. Jonathan Frost agrees, noting that Europe “is facing increased hostile activity across cyber, infrastructure and information domains from regimes such as Russia”. These so-called “hybrid conflicts” are “below the threshold of war but above the threshold of normal state relations”. For example, this year “the Dutch authorities identified a cybersabotage attack on the digital control system of a Dutch public service”, which they eventually traced back to the Russian state. Russia is also considered the prime suspect for the JLR attack.

North Korea, too, is “always at or near the top of the list of hostile states, as is Iran and China”, says Chris Gannatti, global head of research for WisdomTree. He points out that earlier this month AI start-up Anthropic claimed that Chinese hackers had launched cyberattacks against them in an attempt to co-opt Claude, their AI system, so that it could be used for sinister purposes. With such a close connection in the digital world between data and sovereignty, “it’s unsurprising that the rise in geopolitical tensions has coincided with the rise in cyberattacks against civilian or government infrastructure”, says Axel Belorde, head of business development for EMEA & Asia at VettaFi.

AI is ushering in a new era of cybercrime

Anthropic’s experience highlights the fact that, as nearly all the experts I spoke to agreed, AI is showing “the ability to expand cybercrime exponentially”, says NordVPN’s Briedis. With generative AI allowing for “vibe coding” – the ability to create programs by simply specifying what you want to create – even the least technically savvy hacker “can type something into ChatGPT and create a simple virus or malware in seconds”.

While many of the larger AI models are desperately trying to build in safeguards to prevent this, they may be too late – “for a few thousand pounds you can get access to your own bespoke AI system that won’t have any of these restrictions”, says Briedis.

As AI becomes ever more sophisticated, its use could expand beyond simply making it easier for hackers to write malicious code. AI could create “agentic” programs that can be sent out to wreak havoc on their own, without the need for constant human direction. Tom Kynge, portfolio manager at Sarasin & Partners, says that even before the Chinese attack, tech start-up Anthropic had done “some really interesting testing on this front, with results showing that AI systems can demonstrate behaviours such as deception, creative problem-solving and manipulation”.

AI-powered social engineering can make things worse

AI can also help hackers carry out what’s known as “social engineering”, where hackers persuade people to voluntarily hand over important security details by impersonating friends, family, colleagues or customers. This matters because, as security companies have become better at bolstering defences against viruses and security breaches, “cybercriminals are increasingly focusing on social engineering”, says Rupert Small, founder and CEO of Egregious, an analysis platform that aims to protect the internet from AI deception. He notes that in some cases, the latest models can “make us believe whatever they want us to… that completely transcends what any other human can do, including your own close family”.

Silver-tongued chatbots and deep-fake videos represent the cutting edge of social engineering. But more mundane AI tools can also pose a threat. Hill Dickinson’s Kate Steele says hackers are already using AI “to send out random emails to a large number of people at a much larger scale than they were previously able to”. What’s more, generative AI is ensuring that, “while the emails from fraudsters used to be easy to spot, as the grammar or spelling wouldn’t be quite right, they are now much more convincing”.

On a more positive note, there is evidence that AI can be used to defend us against security threats as well as create them. “There are many start-ups, many of them created in the UK, which are using AI to detect scams created by social engineering and phishing,” says Small. All the evidence so far is that AI “can be very good at detecting such scams at scale”. Those using AI for defensive purposes may be “a few steps behind” those using it for criminal purposes. However, “the defensive tools definitely exist, it’s just a question of getting them adopted”.

Cat McDonald, a partner at venture-capital firm AlbionVC, takes a similar view. Using AI to detect fraud can lead to false positives, yet AI can also “help find patterns that wouldn’t be visible to the human eye, allowing you to defend yourself far better and quicker than you would be able to do otherwise”. NordVPN’s Briedis notes that his company is already using its own machine-learning algorithms to combat phishing and scam sites. In the future, cybersecurity “is going to be increasingly AI versus AI”, says Briedis.

Threat from quantum computing

AI isn’t the only technology “shaping the next cyber battlefield”, says Citation Cyber’s Javid. Quantum computing is also seen as a threat. The exponentially faster computing speeds it promises mean it will become possible to break encryption systems that normally would take thousands of years to crack using today’s technology, rendering them “irrelevant”, says Tom Peirson-Webber, VP of engineering at Harbr Data. This future might be less distant than people think. The UK’s National Cyber Security Centre suggests that companies “should plan on being quantum-ready sometime between 2030 and 2035”.

IBM has predicted that by 2029, “we’re going to start getting useful outputs from quantum machines that are beyond the reach of classical machines”, notes WisdomTree’s Gannatti. Certainly, “there’s been a lot of talk in both the encryption and cryptocurrency communities about how to deal with this emerging threat, with several start-ups working on how to make encryption quantum-proof”. In a sign that the threat is being taken seriously at the highest levels, the National Institute of Standards and Technology in the US has published papers on how quantum-safe encryption standards could work.

However, even if quantum-proof encryption methods are developed in time, they will still need to be rolled out. While Peirson-Webber likens the problem to the millennium bug, where many people worried about the impact of the date change on computer systems, only for the transition to go relatively smoothly, this is not as reassuring as it might sound. After all, the millennium bug was only overcome “because people started planning for it in 1990, rather than leaving everything to the last minute”, a mistake he worries that some companies may be making. Another risk comes from “people stealing encrypted data today, in the hope that quantum will enable them to decrypt it in a few years’ time”.

Big winners in the growing demand for cybersecurity

So which type of companies will benefit the most from the boom in cybersecurity? AlbionVC’s McDonald thinks the industry is dominated by a “few, very large platforms offering a broad suite of services”. These platforms “have strong brands, established trust and are liked by the security teams of large organisations, who are completely overwhelmed by the large number of solutions out there and find that having a one-stop shop can be very helpful”.

However, she also notes that the recent wave of both security breaches and outages have shown the downsides of having too much consolidation “and made enterprises a little more cautious about having all of their eggs in one basket”. She also notes that many of the large platforms “have reached the stage where they are not able to innovate quickly enough”. This is creating opportunities for “a lot of very exciting early-stage cybersecurity companies, including many coming out of academia, that are looking for solutions that can help defend against new attacks”.

Similarly, VettaFi’s Belorde thinks the recent AWS outage “is a good reminder that there is rarely such thing as 100% reliability”. Companies need to “carefully assess their remedial plans”. In the case of security services, that means having multiple providers, while with regard to storing their data, it makes sense to ensure that cloud storage isn’t the only option used, with the most confidential data stored on properly secured physical servers. In short, the “growing need for more innovative cybersecurity solutions” will benefit an “entire ecosystem of companies”.

How to invest in the cybersecurity sector

The easiest way to invest in companies benefiting from the boom in the cybersecurity sector is through an exchange-traded fund (ETF) tracking a broad portfolio of cybersecurity firms, such as the WisdomTree Cybersecurity Ucits ETF (LSE: WCBR). WidsomTree has built a portfolio of 25 firms by asking experts who have worked at a range of organisations, including the US National Security Agency, to find companies that will benefit from what it sees as eight key themes, ranging from cloud security to cybersecurity education. The largest holding is Crowdstrike, which accounts for 7% of the ETF, with the top ten accounting for half the fund. It has a total expense ratio (TER) of 0.45%.

The third-largest company in WisdomTree’s portfolio is Akamai Technologies (Nasdaq: AKAM). Although its core business used to be providing a secure connection between the user and an internet site, it has recently shifted towards providing services for cloud computing, including cybersecurity. Unlike many companies in the sector, Akamai is not only profitable but also trades at a relatively modest valuation of less than 13 times expected 2026 earnings. Nonetheless, it has a consistent record of solid growth of around 6%-7% a year, with revenues rising 40% between 2019 and 2024.

Another major holding in WisdomTree’s portfolio is Qualys (Nasdaq: QLYS). Qualys provides a comprehensive set of cybersecurity services over a cloud-computing platform. It has a strong record of growth, nearly doubling sales between 2019 and 2024 while increasing its earnings per share over the same period. It boasts strong operating margins and a return on capital employed of more than 30%, which makes the fact that it trades at 21 times expected 2026 earnings seem more than reasonable.

One cybersecurity company that Tom Kynge, portfolio manager at Sarasin & Partners, deems one of the “winners” when it comes to firewalls (a barrier designed to prevent unauthorised people gaining access to a network) is Fortinet (Nasdaq: FTNT). Rather than just providing a single service, it offers a platform that provides a wide range of services, from secure networking to AI-driven security operations. It has nearly tripled sales since 2019, with earnings per shares increasing more than sixfold. That justifies a 2026 price/earnings (p/e) ratio of 28.

Another cybersecurity firm Kynge likes, and a major holding of HANetf’s Future of Defence Ucits ETF (Nato) – VettaFi’s Axel Belorde is also involved with this ETF – is Palo Alto Networks (Nasdaq: PANW). Its divisions include Network Security, Cloud Security and Security Operations. It also has a Threat Intelligence and Advisory Service. Even though the stock trades on a 2026 p/e of 47, revenue has more than doubled since 2021, and the group is expected to keep expanding strongly.

One smaller company that should also benefit from increasing corporate awareness of cybercrime in fraud is PCI-PAL (LSE: PCIP). PCI-PAL specialises in ensuring that a firm’s payment systems are secure, so they can take payments over the phone or online without risk of fraud. Brendan Gulston of the Gresham House UK Multi Cap Income Fund thinks that PCI-PAL is “a great example of a company that, while not seeking to provide cybersecurity directly, has developed a product that is in demand because of companies’ worries about fraud”. PCI-PAL is a riskier investment as it has only recently started to become profitable, but it has seen revenue grow fivefold since 2020.

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After World War II, America and its allies put in place a set of alliances, institutions and power structures to rebuild war-ravaged countries, create geopolitical stability and generate global economic growth. This post-war order has endured – with one important change – for much of the following eight decades.

The fall of the Berlin Wall and the dissolution of the Soviet Union seemingly marked the end of any alternative to Western capitalism and liberal democracy as the main global economic system. However, in recent years, it has become increasingly obvious that the ties holding this US-dominated system together are fraying and are likely to break.

We are heading into a new world that is likely to be more unstable. In a symbol of this change, on 5 September this year, US president Donald Trump signed an executive order renaming the Department of Defence as the Department of War. This restores the name that it carried from 1789 until 1947 and points to the rising risks of conflict in the years ahead.

So how should investors position themselves for what comes next? What areas that are currently under-represented in most portfolios should they consider for diversification and protection?

Rivalry and conflict between the US and China

The main question is how the shift from a single superpower to two contending nations – the US and China – will affect global supply, demand and the efficiencies of comparative advantage. Free trade has generated huge gains since the end of the Second World War, and even more so since the end of the Cold War. This is now clearly under threat.

With the end of the post-war order comes the new “Great Game”. This name was originally given to the struggle between Britain and Russia for influence in Central Asia (Afghanistan and Persia). This time, the strategic rivalry and political conflict is between the US and China. Paradoxically, it is America that is now pursuing a more inward-looking strategy under Trump’s Make America Great Again (MAGA) banner, while China aims to build economic and political alliances through its Belt and Road (BRI) and Global Development Initiative (GDI) projects.

While America strives to bring its manufacturing base back onshore, Europe is now having to divert budgets from social welfare to rearmament. Both are now in stiff competition with China to electrify the planet and build digital infrastructures. This will inevitably lead to global competition for resources across energy, metals and critical minerals.

This is leading the two superpowers to weaponise their core strategic advantages. For America, this is the US dollar, still the world’s global reserve currency. For China, it is a stranglehold on rare earth elements and critical minerals.

China needs an alternative to the dollar

Freezing and confiscation of assets and denial of access to global payments systems is forcing non-US aligned countries to look for an alternative store of wealth and means of exchange. Herein lies the potential significance of the Brics+, the informal name for the original group of five key emerging-market powers – Brazil, Russia, India, China, South Africa – plus other countries that have begun joining them for summits and policy coordination. Some see this group as a counterpart to the G7 group of developed economies. Initiatives by the Brics+ members so far include work on a development bank, central-bank cooperation and an international payment messaging system.

Any alternative to the dollar looks increasingly likely to be a form of tokenised, asset-backed digital currency. This explains why many central banks closely aligned with the Brics+ nations have been large buyers of gold and other precious metals.

If the creation of a new currency system seems far-fetched, it is worth a quick review of the genesis of the post-war order: the Bretton Woods Agreement of 1944. China is a great student of history, and this agreement provides an template for how new world orders are created. While World War II was still raging, more than 700 delegates from 44 countries met at Bretton Woods in New Hampshire in the US to work on a new global monetary system. The goal was to create a globally efficient foreign exchange market, prevent competitive currency devaluations and promote global economic growth.

John Maynard Keynes, one of the principal economists at the meeting, proposed creating a new international reserve currency called the “bancor” and setting up a global central bank called the “Clearing Union”. However, these proposals were eventually watered down by the US Treasury in favour of a more prominent role for the US dollar, whereby the dollar would be pegged to the price of gold, and other participating currencies would be pegged to the dollar. The agreement was fully implemented in 1958, pegging the US dollar to gold at $35 per ounce.

This system functioned until the early 1970s when it became evident that US gold reserves were not adequate to sustain the peg. This caused a run on gold, forcing first a temporary suspension of the dollar’s convertibility into gold followed by complete collapse of the agreement in 1973. US president Richard Nixon also imposed a 10% tariff on all dutiable imports to force its major trading partners to adjust their currencies upwards and trade barriers downwards. Does this sound familiar?

China has already taken the strategic initiative to convene the Brics+ group of nations. It has established the Shanghai Gold Exchange – and associated physical storage – and now holds a significant percentage of its reserves in gold. It has shown little desire to replace the dollar with its own currency – internalisation of the renminbi would erode the ability to operate capital controls – but it and its allies need an alternative to the dollar.

Given China’s embrace of technology and advanced domestic digital-currency adoption, it does not feel far-fetched to envisage it launching a Bretton Woods-style gold-backed digital currency for those unable or unwilling to access the US dollar system. Crypto tokenisation is the vehicle, not the asset.

China's control of strategic resources

China’s strongest bargaining chip lies in its control of rare-earth elements (which are used in magnets, electrification, lasers and optical devices, catalysts and emission controls and radar/guidance systems), as well as critical minerals, that have broader energy, industrial and defence applications.

China has this control because, while the West focused on the comparative advantage of outsourcing its production to countries with lowest costs, China focused on building an end-to-end supply chain comprised of exploration, mining, refining and industrial manufacturing. With its looser environmental controls, it has come to dominate the global supply of these critical minerals.

In the tit-for-tat game of tariffs and sanctions, China is able to leverage its position in the one area where the US is completely vulnerable. So just as China and its allies have no alternative but to develop a competitor to the US dollar as a store of wealth and means of exchange, the US and Europe now see they have no choice but to develop alternative sources for mining and processing capacity to break this reliance. Exacerbating the situation, America’s prioritisation of its own MAGA agenda over historical alliances has left Europe and other previously US-aligned countries to build their own rather than collective resources.

If investors believe the post-war order is irretrievably compromised, they should consider investments that give exposure to these themes. Gold and precious metals for hard assets. Tokenisation and chips to enable digitalisation. Energy and power generation, rare earth elements and critical minerals, which will be in demand as both sides try to secure supply chains. And US and European defence stocks as the West joins in the new arms race.

Investors have many ways to access these ideas, including individual stocks, thematic exchange-traded funds (ETFs) or exchange-traded commodities (ETCs) that hold physical metals. Listed commodity futures and options are also becoming increasingly accessible, as major exchanges such as the Chicago Mercantile Exchange (CME) roll out mini and even micro contracts, which are 1/10 or 1/100 of the size of standard contracts and require less up-front capital. Such instruments are only suitable for experienced investors, but they offer a way to quickly add hedges or speculative positions to a portfolio – something that will become more valuable in a fast-changing world.

James Proudlock is managing director of OptionsDesk.

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Gold has risen more than 60% this year to over $4,300 per ounce. In doing so, it has transformed the outlook for the gold-mining industry after years plagued by post-pandemic supply chain snarl-ups, a lack of labour and the 2022 energy crisis.

Last quarter, gold producers generated roughly 50% more free cash flow than consensus estimates, notes Jim Luke, who runs Schroders ISF Global Gold among other funds. Importantly for investors, most companies are not rushing to spend this windfall.

Miners are still running their businesses using “conservative gold price assumptions” of around $2,500 to $2,800 per ounce, and letting cash build up on their balance sheets. In the first quarter of 2025, the sector moved from a net debt to a net cash position for the first time in more than 20 years.

Gold miners are deeply undervalued

As a result, gold miners now look deeply undervalued. Across the mining sector, the price/earnings (p/e) ratio has halved over the past decade, while the gold price has more than doubled, note Keith Watson and Robert Crayfourd, managers of the Golden Prospect Precious Metals (LSE: GPM) and CQS Natural Resources Growth and Income (LSE: CYN) investment trusts. “While there has been some recent performance, it’s not fully reflective of the current spot price, and that creates the opportunity.”

The big miners have now become cash cows, and analysts are struggling to catch up. Last week, Canaccord Genuity published a note on London-listed Fresnillo (LSE: FRES) for the second time in five weeks, revising its earnings targets higher by more than 70% for 2026.

“Our profitability profile for Fresnillo has moved faster than at any other time under our coverage,” they say. Two years ago, the firm’s capital spending commitments were consuming all of its operating cash flow. Today, cash flow exceeds spending by three times.

The cash influx is likely to lead to a rush in mergers and acquisitions (M&A) over the coming months and years. “It’s still cheaper to buy assets than to build them, and buying avoids the execution risk associated with development,” say Watson and Crayfourd. “We expect to see larger companies begin to focus on growth, which will create a bid for developers and smaller producers to be acquired.”

How to invest in gold miners

Funds that own a spread of larger miners, smaller producers and explorers could be the best way to capitalise on the sector. Golden Prospect is a pure play on precious metals, with roughly 85% in gold stocks. CQS Natural Resources has about 50% invested in precious metals miners, as this is where Watson and Crayfourd see the greatest value in the commodity space.

The BlackRock World Mining Trust (LSE: BRWM) and the open-ended BlackRock Gold and General Fund are both managed by the well-resourced Thematics and Sectors team at BlackRock, headed by mining-sector veteran Evy Hambro. As such, the investment trust team at Winterflood thinks these are some of the best ways to build exposure to the sector as a “one-stop shop” for investors looking for commodities exposure. Gold and General is a pure play, with almost 90% in gold and most of the balance in silver, while World Mining has 36% in gold.

There are also several other active funds that invest in gold and precious metals, as well as a growing number of passive exchange-traded funds (ETFs) that track various gold-mining benchmarks. The latter include Van Eck Gold Miners (LSE: GDGB) and L&G Gold Mining (LSE: AUCP). Both of these have done very well over the past year, but as the difference in returns – 83% versus 103% – shows, different funds and indices can have very different outcomes.

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Rob Granieri is “the last founder standing” at Jane Street – “the black-box money machine” currently “minting Wall Street records”, says Bloomberg. But he’s almost impossible to pin down – guarding his “low-key stature” so tightly that he often goes unrecognised, even in his own company, where he officially has no title. His profile in the employee directory stands out for its missing headshot.

If you want a sighting of the “schlubby” billionaire recluse, you’re better off looking beyond Wall Street. The “soft-spoken libertarian” is most at home at alternative gatherings: notably that “mecca of counterculture”, the Burning Man festival. Another favoured haunt is the Scarlet Pearl casino in Mississippi’s Biloxi Bay – a family affair he helped build and finance.

Still, “invisibility has grown harder to maintain” as Jane Street’s profits have exploded, says the New York Post. The firm, which some have dubbed the world’s most lucrative trading house, has enjoyed such breakneck growth over the past five years – at the vanguard of the exchange-traded fund boom – that it accounted “for nearly a quarter of all US-listed ETF trading volume last year”. “The amount of money they make is almost obscene,” one former analyst told the Financial Times, which describes the “quirky and opaque” outfit, renowned for spotting arbitrage opportunities, as one of the “new titans of Wall Street” – frequently trouncing establishment rivals. Jane Street’s $21.9 billion trading revenues in 2023 were “equivalent to roughly one-seventh of the combined equity, bond, currency and commodity trading revenues of all the dozen major global investment banks”. The arrival of bitcoin ETFs the following year put another rocket under revenues. As of June this year, it had already pulled in $17 billion.

Granieri, now 53, always “harboured ambitions to make a lot of money”, says Bloomberg. After graduation in 1992, he printed a stack of CVs and dropped them off on each floor of Philadelphia’s tallest buildings. The strategy worked. He scored a job at Jeff Yass’s Susquehanna International Group, “the quant-trading firm that was quietly becoming a market behemoth,” and was soon pulling in $700,000 a year. But, itching for change, he teamed up with two other traders to form the firm that became Jane Street in 1999.

Rob Granieri: into the limelight

Being dragged into the limelight by success is one thing. Sadly for Granieri, Jane Street is increasingly under scrutiny for other reasons, too. Most serious, says Bloomberg, is an accusation by the Indian regulator of “rigging the world’s largest options market”, which the firm has vowed to fight. The collapse of Sam Bankman-Fried’s FTX crypto exchange, and subsequent high-profile fraud trial, also shone unwelcome light on the firm’s culture – “SBF” spent his early career there, personally recruited by Granieri. “Having Jane Street on the CV was a crucial bit of Bankman-Fried’s sales pitch,” notes the FT. Yet the lax office vibe at FTX was a partial mirror of Jane Street’s, where Granieri “has inculcated a culture that mirrors his quirks”, says the New York Post.

The wider worry, says the FT, is that Jane Street’s “tight-knit” corporate culture no longer fits its size and global clout. The firm is run by roughly 40 equity partners with no traditional management structure: a recipe for a lack of accountability, say critics. Much depends on the outcome of the Indian investigation. The worse-case scenario for the firm is that “the temporary block on activities” imposed there could spread to other jurisdictions as regulators dig deeper. One of Granieri’s few personal indulgences is fine dining. Why cook, he jokes, when you can “eat at Le Bernardin every night”? Given his woes, he could be forgiven a spot of comfort eating.

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Digital currencies (cryptocurrencies) have moved from the outer fringes of investing into the mainstream in recent years. While it’s been a roller-coaster ride for investors, crypto is here to stay. Governments and regulators progressed from ignoring it to fighting it; now they are trying to jump on the bandwagon by allowing investors access through exchange-traded funds (ETFs). However, while bitcoin might not be in a bubble, some of the companies involved in it are.

Chief among these is the group of companies known as bitcoin treasury companies. These firms’ business models involve buying a load of bitcoins and holding them on their balance sheets in the hope that investors will be willing to value their shares at a premium to the value of the bitcoin. They would then promise to take advantage of this premium to issue more shares, which could be used to buy more bitcoin, in the hope that those who invested would see the bitcoin per share holdings increase.

Trouble ahead for bitcoin treasury companies

Incredibly, this model worked for a time, with some companies trading at twice (sometimes more) the value of their net crypto assets. However, because mainstream financial institutions now offer products such as ETFs, it has become much simpler for even cautious investors to buy crypto, so bitcoin treasury companies have become much less attractive. As a result, the valuations they can command have started to dwindle. Meanwhile, some bitcoin treasury companies have struggled to issue more shares, leaving their investors with a large amount of very expensive bitcoin.

One such company is Strategy (Nasdaq: MSTR). While Strategy has its own business software and intelligence business, most analysts believe that virtually all its value resides in its 640,000 bitcoin, the largest corporate holding in the world. The problem is that while this pile is worth around $73 billion at current prices, Strategy also has debts of $11 billion. Overall, this means that it trades at a 40% premium to the value of its bitcoin, using the industry’s preferred metric. In other words, those who invest in the company are paying $1.40 for every $1 worth of bitcoin that Strategy holds, a pretty poor deal, especially compared with holding bitcoin directly or through an ETF.

Despite the ongoing appreciation of bitcoin, Strategy’s share price is currently trading below both the 50-day and 200-day moving averages, and is significantly down from its peaks earlier this year. I would therefore suggest shorting Strategy at the current price of $305 at £5 per $1. At the same time, I suggest that you go long on bitcoin at the current price of $114,639 at £1.50 per $100. This means that as long as the price of bitcoin outperforms Strategy’s share price, you should make money. To limit your losses, I would cover your position in Strategy if its share price rises above $610.

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Matthew Partridge: What is your book, The Money Trap, about?

Alok Sama: It’s a memoir of my six-year journey as the president and chief financial officer of SoftBank Group International, working for SoftBank founder Masayoshi Son. Son is an absolutely fascinating character in the world of technology and finance, and the best way to understand Masa is to take his self-description of himself, as “the crazy guy who lives in the future”, at face value. Although he’s been characterised as a compulsive gambler, if you live in the future and you’re making big bets on something that you’ve already seen in your mind, there’s not a lot of uncertainty associated with that.

Matthew Partridge: You quote Son as saying “in the fight between the crazy man and the smart man, the crazy man will always win”. What does he mean by that?

Alok Sama: Son is a big fan of investing in companies led by true visionaries, and many of them are seen as crazy. In the case of Alibaba, one of his greatest successes, he put in money after meeting Alibaba co-founder Jack Ma, who at the time only had a very rudimentary idea of what he wanted to do, and in fact ended up doing something completely different. Son bet on the man, rather than the idea, which is what he means by the crazy guy always wins.

Matthew Partridge: Son has had some major successes, but also some major flops, most notably WeWork.

Alok Sama: Son has had some flops, but he is humble enough to admit it when he goes wrong. When it came to WeWork, he was honest enough to say that he blamed himself more than WeWork’s CEO and co-founder, Adam Neumann. And when it comes to investing in technology, he got the big calls spectacularly right: chipmaker ARM has made more than $100 billion in profit for SoftBank; Alibaba, $72 billion.

Matthew Partridge: Do you think there’s anything that the average entrepreneur or investor can learn from Son’s career?

Alok Sama: Son really is one of a kind, and is the sort of person who is easy to admire but impossible to emulate. But people can copy his resilience – the way he has bounced back, first from the collapse of his net worth when the dotcom bubble burst in 2000 and also from his more recent stumbles. But Son also demonstrates the danger of hubris. If you’ve had a great run in the market, then it’s easy to think that you’re invincible. That’s when you really need to be cautious, as your moment of maximum comfort is your moment of maximum vulnerability.

Matthew Partridge: AI boosters like Son think that AI is going to save humanity, while “doomers”, such as Elon Musk, think AI threatens our existence (and therefore needs to be tamed). At the end of the book, you declare that there are still some things computers won’t be able to do. Are you still sceptical about AI?

Alok Sama: My views on this are evolving daily because I play with ChatGPT and other large language models (LLM), and it’s scary how quickly these machines are evolving. For example, I’ve been periodically testing their ability to deal with humour and irony, and over time, the answers have become much more nuanced and much more human-like. AI is great at learning to do things, or even refining them, if they have been done before – and in many cases can do so better than humans. I have never felt safer in a car than I have in a self-driving Waymo.

That said, all these machines work by predicting what pixel or what word or what letter comes next based on analysing what came next before, which is a process that precludes originality. So, I still do not believe a machine is capable of doing something that is completely new.

Matthew Partridge: Do you think that we are close to artificial general intelligence (AGI, or computer self-reasoning), or is that still some way off?

Alok Sama: I’m not even sure that AGI can be properly defined. I think that we’ve already passed the loose definition of the Turing test, which is whether a machine can impersonate a human effectively. But it doesn’t really matter either way, as AI is a massive productivity tool moving at warp speed and changing everything we do, with the exception of manual tasks, like being a plumber.

Matthew Partridge: Are there going to be any losers from AI?

Alok Sama: It certainly will be disruptive and disorientating, and it’s not just call-centre workers that are vulnerable. As recently as five years ago, we used to think computer coding was an essential skill, but LLMs are getting pretty good at coding. But generally, it will make people more efficient. In the early days of the internet, everyone was worrying about whether it would make people redundant, but we adapted, with new jobs and business models. Similarly, I would never bet against human ingenuity, and we will keep reinventing ourselves. We always do.

So, while there will still be doctors and lawyers, lawyers will rely a lot less on paralegals and doctors will rely a lot less on old-fashioned machines. After all, machines can read X-rays better than humans can now. So, everyone will be a whole lot more efficient.

Matthew Partridge: Do you think that the AI companies are overvalued? Is there a bubble?

Alok Sama: It’s important to distinguish between public markets and private markets. The fact that people can raise billions, or tens of billions, from venture capitalists without even a proper business plan, or tangible product, is evidence of excess. However, if you look at Microsoft, Google and Meta, the valuations aren’t silly.

During the internet bubble in 2000, Cisco, which provided the infrastructure and plumbing for the internet, was valued at over 200 times earnings at its peak. By contrast, Nvidia, which had a stronger competitive position than Cisco ever had, is growing faster and is valued much more reasonably. Nvidia’s revenue and profit growth have outpaced its share-price growth.

Matthew Partridge: In the book you note that a lot of Indian entrepreneurs now are actually setting up their own companies in India. Has Silicon Valley lost its competitive advantage?

Alok Sama: When I left India in the 1980s, it was still characterised by socialism and bureaucracy (the “license Raj”), which made it impossible to start a firm. But things have changed dramatically. India also benefits from the fact that you don’t have a lot of pre-existing infrastructure, which can, paradoxically, slow down change. So, rather than being loath to give up malls, people can move directly to e-commerce. Likewise, there isn’t any credit-card penetration. As a result, the move towards using digital payment is quite seamless.

When it comes to cutting-edge technology, whether it’s AI or quantum computing, the action is still in the Valley, to a lesser extent. There’s a lot going on in the UK, with some interesting firms coming out of the Cambridge and London university ecosystems, with DeepMind (which emerged from the latter) eventually being bought out by Google.

Matthew Partridge: While the UK has produced a lot of interesting start-ups, it’s had a problem turning them into much bigger companies. Do you think this matters for the UK, and if so, what should the UK government do to address this problem?

Alok Sama: I think as long as we continue to invest in the educational ecosystem and let nature take its course, you’ll have bright minds coming up with interesting companies, and the capital will come. It doesn’t have to come from the UK – it can come from the US, China or even the Middle East.

Matthew Partridge: The re-election of Donald Trump marks a resurgence in economic nationalism. Do you think that is here to stay?

Alok Sama: America is critical to the global economy and thus impossible to ignore. However, the European and British approach of being pragmatic, realising that they need the US as a big trading partner and as a source of technology and defence, and adjusting accordingly, is the most sensible course. Countries shouldn’t moralise; they must deal with it.

Matthew Partridge: How should investors deal with everything going on, including tariffs and AI?

Alok Sama: There are no shortcuts to investment success. So I think that using index funds and exchange-traded funds (ETFs) is the best way to go, for two reasons. If you’re buying the market, whether it’s the S&P 500 or a global index, it is heavily skewed towards technology anyway, so you’re getting plenty of exposure to that. And every company will benefit from AI. It’s a productivity tool and it means margin expansion across the board. So you will benefit from that even if you’re not directly invested in a tech company. Stick with ETFs and be in it for the long haul.

Alok Sama is the former president and CFO of SoftBank Group International. He is the author of The Money Trap: Grand Fortunes and Lost Illusions Inside the Tech Bubble, now out in paperback. He is available for speaking engagements via Champions Speakers.

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While the US dollar was continually getting stronger and sterling was continually getting weaker, British investors rarely needed to worry too much about currency movements. If you held an international fund that was benchmarked to the MSCI World or a similar index, your currency exposure was around 60%-70% to the US dollar and the trend worked in your favour.

If the era of the strong dollar is over – and the Trump administration’s policies imply that it probably is – that will no longer work in our favour.

Even if the US stockmarket keeps going up – which is quite possible if the US Federal Reserve cuts rates aggressively – a weaker dollar would mean much lower gains for foreign investors.

One obvious conclusion is that investors will give much more thought to whether they should hedge currency exposure – eg, by buying currency hedged classes of exchange traded funds (ETFs).

For example, an ETF such as iShares Core S&P 500 is available both as a share class that is quoted in sterling (LSE: CSP1) and one that is hedged into sterling (LSE: GSPX). The first will be affected by how the dollar moves against sterling. The latter will be hedged against it to some extent – but there will be a limit to this as well.

How currency hedged funds work

To understand why even a currency hedged fund won’t insulate us from currency movements completely over the long term, it’s useful to think about how funds hedge currency exposure.

Hedging means using forward contracts to lock in the exchange rate at which the investor will buy or sell a certain amount of the currency on a future date.

Of course, the exchange rate that is locked in will not be the same as today’s exchange rate. For every currency pair such as the sterling and the dollar, there will be a forward rate for a transaction in one month, one year, five years and so on. The forward price should depend on the difference in expected interest rates over that time period. If it did not, an investor could earn risk-free profits by borrowing in one currency; investing the proceeds at a fixed interest rate in a different currency for one month; and buying a forward contract to exchange the second currency back into the first currency (and repay the money borrowed) without taking any risk of how exchange rates will change.

If you have very certain long-term cash flows – eg, from an infrastructure project – you can enter into very exact hedges. You buy forwards to perfectly match the foreign currency you expect to receive when you receive it. This is not true for most equity or bond ETFs or funds, where future returns may be uncertain and where money may flow in and out of your fund all the time. So a currency hedged fund typically enters into a series of short-term forwards, which it continually rolls over. This certainly helps smooth out currency volatility – but in a world in which interest-rate expectations and hence forward exchange rates become more volatile, it may not always work as well as investors expect.

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On 8 October, UK retail investors will once again be able to invest in Bitcoin exchange-traded notes (ETNs), which will be listed on the London Stock Exchange.

The UK financial regulator, the Financial Conduct Authority, banned them in 2020, saying that crypto assets cannot be reliably valued by retail consumers because “these assets have no reliable basis for valuation”.

It was also concerned about “the prevalence of financial crime, extreme volatility, inadequate understanding by retail consumers, and the lack of legitimate investment need.

These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products”.

This accurately described many crypto assets at the time, but I believe it was heavy-handed to include Bitcoin, along with the other major projects such as Ethereum.

Other countries have recognised this, and it is right that Britain should do the same.

In 2020, Bitcoin was emerging as an institutional asset, as it already had an active futures contract in the US.

Bitcoin exchange-traded funds, or ETFs, were launching in Switzerland, Germany, Brazil, Hong Kong, and Canada, and a US version was being discussed. (In Europe the ETFs are often called ETNs or ETPs, exchange-traded products.) The US ETFs were approved in January 2024.

They were a huge success, and the iShares Bitcoin Trust has grown into an $88 billion product, marking the most successful fund launch in BlackRock’s history. Two months later, the UK regulator revised its 2020 statement, saying that crypto ETNs could list in a new segment on the London Stock Exchange dedicated to professional investors only. It reiterated that crypto assets were “high risk and largely unregulated. Those who invest should be prepared to lose all their money”.

Then, as Bitcoin has enjoyed three years of relative calm, in June this year the Financial Conduct Authority (FCA) announced it would lift the ban on crypto ETNs for UK retail investors. “This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry. We want to rebalance our approach to risk and lifting the ban would allow people to make the choice on whether such a high-risk investment is right for them, given they could lose all their money.”

Catching up with the world on Bitcoin

The FCA recognised that Bitcoin was thriving and that the UK had become an overly cautious outlier. London is a major financial centre, and banning innovative financial products, risky or otherwise, would ensure London’s long-term irrelevance.

A little regulation is a good thing, but too much will certainly kill you. Some of its concerns were legitimate, because many crypto assets are intrinsically worthless. But Bitcoin, along with some other important crypto projects, stand out from the crowd.

For example, crypto assets are volatile, but even in 2020, Bitcoin was much less so than the rest. Its 360-day volatility was in line with Marks & Spencer or Legal & General at the time, and today it is even lower.

Bitcoin has also inspired many innovations, such as the stablecoin, enabling cash transactions in real time over the internet, and non-fungible tokens, which pave the way for the tokenisation of real-world assets. There have also been bright ideas in decentralised finance (DEFI), new trading technologies, and perpetual futures contracts. Many of these ideas are finding their way into mainstream markets. I think the next generation will not differentiate between equities and crypto as they will essentially merge.

Yet still to this day, many ask what Bitcoin's purpose is, and what value does it represent? I think the answer is simple, and the clue lies in its high correlation with the technology sector. While many describe it as electronic gold, its price doesn’t behave like it. It correlates with technology stocks because it is a technology. It has become the de facto reserve asset of the internet.

When you consider how fast AI is growing, and that it operates 24/7, can traditional banking keep up? Bitcoin trades instantly and settles within minutes. It is a very liquid asset trading around $40 billion each day, which is not as much as gold’s $150 billion, but is more than the most liquid stocks in the world, and growing.

The history of crypto regulation in this country mirrors the development of the asset.

As Bitcoin has matured, the regulator has shifted its stance.

At the time of the ban on 6 October 2020, the price of Bitcoin was £8,189. Today it is £84,497. There must have been concerns that Bitcoin was extremely risky, because I cannot recall a case where investors have been prevented from buying a publicly traded asset before.

In UK regulatory circles, we should presume that Bitcoin was seen to be highly toxic. As the FCA is at pains to point out, Bitcoin might still lose you all of your money, but it is also recognised that it could do the opposite.

For those who are intrigued but wary, I have the solution. By holding the 21Shares Bitcoin and Gold ETP (Zurich: BOLD), you get the best of both worlds. It tracks the BOLD index, which I created five years ago. By regularly rebalancing, it adds value by taking profits from the stronger asset, and adding to the weaker, which also keeps a lid on risk. And by owning gold alongside Bitcoin, losing all of your money becomes impossible.

Charlie Morris is the CEO and founder of ByteTree. It offers investment research for private clients through the Multi-Asset Investor (bytetree.com/the-multiasset-investor), in addition to other research services.

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It’s difficult to imagine a time when anybody was more bullish on Europe than America, but this was a popular investment thesis before the global financial crisis. The US had a giant housing bubble, a vast trade deficit and a currency in steady decline. Consumers were heavily dependent on spending their savings, according to statistics at the time (this data later got revised, and those eight quarters with a negative savings rate turned out to be an error – a good example of how unreliable statistics can be, as I discussed last week). Europe also had housing bubbles, but otherwise looked sounder and was well placed to benefit from emerging market growth.

We all know how this theory turned out. Europe has trailed the US on virtually every financial measure since the crisis (one can very fairly argue that Europe still offers a better quality of life in many ways, but that’s not what we are looking at). The reasons for this go beyond the idea that America is simply more innovative and dynamic, with a whole series of events working against Europe or for the US.

The eurozone debt crisis dragged on far too long, with far too much can-kicking. The shale revolution created a huge advantage for US growth and for the trade balance. Regardless of one’s views on Brexit itself, most people would acknowledge that the process was a distracting, exhausting upheaval for both Britain and the EU. Most recently, Russia’s invasion of Ukraine turned an energy disadvantage into a crisis, put a full-scale war on the borders of a continent that was complacent and completely unprepared for it, and sent uncertainty and fear rocketing. Look back at all this and maybe we should be amazed that Europe hasn’t done even worse.

Still, it didn’t help that Europe put its head in the sand much more than America when cleaning up its banks after the crisis. US policymakers did not exactly get this right – banks were bailed out too freely, there was no accountability for the actions that led to the crisis, and interest rates were cut too low and stayed there too long. Yet its bank stress tests were a success: they led to clear recapitalisation plans, restored confidence in the sector and left banks able to lend again.

European banks stocks are accelerating

Europe’s stress tests were a fudge, and markets knew it. Banks were not recapitalised quickly: they only gradually recognised bad debts while they rebuilt capital. Ultra-low interest rates hurt profitability and made this process slow. That meant that they were in a weak position to lend, even if demand was there. So, US bank shares far outstripped European ones for the next decade.

Yet on the eve of the pandemic, European banks were finally in better shape. After shares bottomed in April 2020, they began to rally. Since 2023, they have beaten US banks and are accelerating. Valuations are rising: the Euro Stoxx Banks index is on a price/book of 1.1, up from 0.7 two years ago. Banks are highly cyclical, and I never like the sector, but they are central to the economy. If Europe is to regain ground against the US this decade, they should have further to run over the long term.

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In spite of a constant barrage of negative headlines in the press, covering everything from geopolitical tensions and global economic jitters to concerns about overtourism, the world’s travel industry is quietly cementing its position as a remarkably resilient and lucrative sector. Far from being a perilous investment, many industry leaders and financial analysts contend that the post-pandemic rebound, coupled with significant structural shifts in demand and the pervasive integration of advanced technology, has transformed large segments of the industry into “just one great big cash machine”, as Frank Holmes, chief executive and chief investment officer of US Global Investors, puts it. This confluence of factors, he argues, positions travel as “one of the all-time great contrarian opportunities”.

Dispelling short-term apprehensions about the travel industry

While acknowledging a degree of softening demand in certain segments, particularly in the immediate term, industry observers largely consider current anxieties to be overstated. Paul Middleton, head of global equities at Mirabaud Asset Management, recounts recent conversations with hotel executives who conceded that “some of the macroeconomic fears were leading to a reduction in the number of bookings that they were getting, to the extent that they were having to take down their guidance about future earnings”. He also notes the genuine “frustration” expressed by local residents in cities such as Barcelona, which are grappling with the inflationary pressures of overtourism.

However, Middleton maintains that this dip in advance bookings does not necessarily portend a decline in actual travel. Consumers, he suggests, are simply waiting for longer and booking at the last minute, rather than three months in advance. They may be concerned about events in the Middle East or the global economy, but “if they still have a job by the time summer comes, they will still be going on holiday”, he says. Furthermore, the prospect that cities will enact draconian measures to curb tourism is deemed unlikely to materialise, given the substantial “economic benefits that come with it”.

This sentiment is echoed by major hotel operators. Simon Vincent, president for the Europe, Middle East and Africa sectors for Hilton, reports “no evidence of significant reduction in traffic from the US to Europe, or to the Middle East”, and is in particular anticipating “a strong summer of US travel into Europe”.

Gianvito Mangano, general manager and director of operations for Canne Bianche, a luxury boutique hotel in Puglia, offers a slightly more cautious perspective, acknowledging a current reduction in US bookings. Yet he attributes this to a shift towards “booking at the last minute rather than way in advance”, aligning with Middleton’s assessment and projecting sustained medium-to-long-term growth from the US market.

Ultimately, market fluctuations, whether driven by “geopolitical factors or consumers’ confidence”, are inherent in the business, says Michael Stiasny, the head of UK equities at M&G Investments. But whatever is going on in the short term, the innate human “propensity to seek out new experiences and other countries” will not fade. Beyond the temporary disruptions, “over the long-term travel should keep on growing”.

The travel industry's post-pandemic resurgence

The travel industry’s remarkable resilience is underscored by its vigorous recovery since the pandemic. Simon McCulloch, the chief growth officer at travel insurance provider Staysure, points to data from the Association of British Travel Agents, revealing that more than half of British individuals took holidays abroad in both 2023 and 2024, a significant rebound from a low of 16% during the pandemic’s peak.

Jean-Hugues de Lamaze, a portfolio manager at Ecofin Global Utilities and Infrastructure Trust, confirms this trend, observing that European air traffic has “broadly recovered to pre-Covid levels and in many cases surpassed them”, a pattern replicated across most developed markets, including the US. Some of the changes the pandemic brought in its wake are likely to persist, such as the rise of virtual meetings and hybrid work, which means “less frequent and leaner” travel for business purposes. But this has been more than offset by a strong surge in leisure travel, fuelled by “more flexible work agreements and pent-up demand”.

Emily Foshag, the head of listed infrastructure at Principal Asset Management, concurs, positing that increased leisure travel has more than compensated for any decline in the number of business-related journeys. “If I and billions more like me are spending more time at our desks on Zoom during our professional lives, we’re going to be more willing to take a holiday that requires some time in the airport and a long-haul flight,” she says. This shift is evident in the performance of airports that cater to leisure travellers, such as those in Spain, which are now reporting traffic “materially above pre-Covid levels”.

And not all agree on the extent even of the downturn in business travel. Hilton’s Simon Vincent sees “business travel pretty much as it was” before the Covid pandemic hit. Although larger corporations may be “a little more selective” about what business travel expenses they will agree to, he argues that small and medium-sized businesses “still prioritise that important face-to-face connection”. Furthermore, major conferences and events remain “alive and kicking”, with record attendance figures, such as at the World Retail Congress held at the London Hilton on Park Lane recently. Vincent also highlights the growing so-called “bleisure travel” trend, where business trips are increasingly combined with leisure activities.

Demographic shifts affecting the travel industry

A significant structural driver of sustained growth in the travel sector is the evolving spending patterns of the global middle class, particularly in emerging economies. Paul Middleton of Mirabaud Asset Management posits that, as incomes rise, both at national and individual levels, a greater proportion of expenditure is directed towards services, notably healthcare, education and travel. “After all, there’s only so many goods that you can buy,” he says, whereas our appetite for thrilling experiences is more expansive. Consequently, the travel industry is projected to outpace overall global economic growth, expanding from 11% of global GDP today to approximately 16% within the next decade, with a substantial share of this growth originating from Asia, particularly China.

Frank Holmes of US Global Investors is also notably bullish on the transformational impact of Chinese tourism. In recent months, “many of the big Chinese tour operators have been buying large blocks of hotel rooms in prime European tourist destinations”, in some instances securing entire hotels. While their focus has primarily been on second- and third-tier hotels – that is, in the middle and upper-middle parts of the market – this rising demand has also bestowed “incredible pricing power” upon luxury hotels, leading to room prices “doubling in less than a year”.

Beyond organised Chinese tour groups, other emerging markets are also contributing to the surge. Gianvito Mangano of Canne Bianche reports a spontaneous increase in Brazilian visitors, prompting his hotel to forge partnerships with Brazilian travel companies and participate in Latin American trade shows.

The inclination to spend more on travel is not, of course, just confined to emerging markets. In developed economies, the younger generations are taking more holidays than their parents and elder siblings. Holmes attributes this partly to a post-pandemic reaction on the part of the generation that arguably suffered the most during the Covid lockdowns and that now wants to get out and see the world. However, he also identifies a broader, pre-Covid generational shift away from goods and towards experiences – a trend he believes is “not going away”.

While acknowledging potential challenges, such as younger travellers’ growing concerns about sustainability for the airline industry, Michael Stiasny of M&G Investments affirms that younger people “have higher expectations about the number and quality of travel experiences, not least because they have grown up in a world where travel is within reach for a much bigger chunk of the population than it was 30 or 40 years ago”.

Profit catalysts within the travel industry

The profitability and revenue generation of the travel industry are being significantly enhanced by the strategic deployment of artificial intelligence (AI). Initially, airlines leveraged AI to drastically reduce lost luggage incidents, leading to an 87% decrease in missing bags – a crucial improvement given its direct impact on passengers’ satisfaction, as highlighted by Frank Holmes. This application has since evolved into more sophisticated uses, such as optimising scheduling through the analysis of historical and real-time demand data. This allows airlines rapidly and accurately to adjust flight frequencies, destinations, aircraft types and pricing.

If a route underperforms, as Holmes explains, AI can enable swift transitions from larger to smaller aircraft, or even the cancellation of flights. Conversely, surges in demand can trigger the addition of extra flights and dynamic price increases. This capability is instrumental in preventing wasted resources on underutilised aeroplanes during off-peak periods and mitigating the need for desperate price discounting. These techniques are now being adopted by the hotel industry with similar success, transforming the traditional “high season and low season” into a “high season and an even higher season”.

While predictive and dynamic pricing models have proved controversial, particularly in live events, technology is also greatly improving the customer’s experience, notes Hilton’s Simon Vincent. This encompasses everything from streamlined check-in processes and room allocation to the convenient ordering of amenities via loyalty applications. Indeed, Hilton’s customers can now utilise technology to customise their stay down to precise details, from preferred floor for a room and outside view to the softness of the pillows.

Paul Middleton of Mirabaud Asset Management further observes how technology is reshaping holiday bookings. The proliferation of choices for modern travellers in the form of book- and price-comparison sites has fuelled the ascent of online travel agents (OTAs). These platforms not only consolidate options, but are increasingly using AI to curate suggestions for personalised trips. OTAs do take a commission from hotels, but their vast data repositories enable them to execute “dynamic pricing quicker and more effectively than any single hotel or chain”.

From an investment perspective, OTAs are an attractive proposition due to their substantial economies of scale. Their predominantly fixed-cost structures mean that platforms capturing a significant market share can offer superior value to consumers, creating a “natural moat” against competition and safeguarding profit margins.

The best travel industry investments to buy now

The easiest way to buy into the travel boom is through an exchange-traded fund (ETF), such as the US Global Investors Travel UCITS ETF (LSE: TRIP). It is run by Frank Holmes and Joanna Sawicka, and follows a “smart-beta” strategy, weighing the holdings in the portfolio based on momentum and earnings (as opposed to market capitalisation alone). At the present time, the fund has 50 holdings, around 40% of which are airlines, which account for the top-four holdings (ICAG, Delta, United Airlines and Ryanair). Hotels make up significant chunks of the portfolio, too. The ETF has a total expense ratio of 0.69%.

The hotel industry generally obviously stands to benefit from the growth of tourism, as well as from the backlash against Airbnbs and short-term holiday lets. One of the biggest international hotel brands (and the tenth-largest holding in the US Global Investors ETF) is Hilton Worldwide Holdings (NYSE: HLT), which owns and franchises a large number of hotels around the world. It trades at 29.7 times expected 2026 earnings, but this is justified by strong growth prospects, especially outside the US. There are around 3,600 new hotels in the pipeline, which should bring the total number to more than 12,000.

Another way to buy into the travel boom is to invest in an online travel agent (OTA). One of the largest of these is Booking.com, which is run by Booking Holdings (Nasdaq: BKNG). Booking Holdings also operates a wide variety of other travel websites, including Priceline, Cheapflight and restaurant reservation service OpenTable. It experienced a large drop in revenue during the pandemic and its immediate aftermath, but has grown revenues by nearly two-thirds since 2019. Profits have gone up by a similar amount. Despite this, the stock trades at a more than reasonable 23.2 times 2026 earnings.

Mirabaud’s Paul Middleton agrees that Booking Holdings has a good business model, but he is even more bullish on Chinese online travel agent Trip.com (Nasdaq:TCOM). He believes it will benefit from the fact that demand for travel is growing far more strongly in China than elsewhere. Another big attraction is its valuation. It has had a similar record to Booking Holdings since 2019 in terms of revenue, but has outperformed it in terms of growing its profits. It trades at a much more modest 14.5 times 2026 earnings.

More people taking holidays and travelling will mean more people passing through train stations and airports. This is good news for SSP Group (LSE: SSP). SSP makes its money operating restaurants, bars, lounges and convenience stores, including those operating under their own brands, such as Burger King and Starbucks, mainly in train stations and airports. It operates in 625 locations in 38 countries. Revenue is now more than 20% higher than it was in 2019, and is expected to keep growing by around 4%-5% a year. Despite this, the stock trades at the bargain-basement level of 12.5 times 2026 earnings.

Many airports are themselves listed on global stock exchanges and Emily Foshag, manager of the Principal Asset Management Global Listed Infrastructure fund, thinks that buying into one in an area that receives a lot of leisure (as opposed to business) travellers could be a lucrative investment. As stated above, she specifically cites Spain as a country that should do well in. Spain’s largest listed airport is Aena (Madrid: AENA). Its profits are now a third higher than they were in 2019, and are expected to keep on growing. The shares currently trade at 15.2 times 2026 earnings, and offer a dividend yield of just under 5%.

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If you’ve ever put cash into an exchange-traded fund (ETF), it is likely to have been a passive investment: a fund that tracks a particular stock market index up and down, rather than actively trying to beat it. These vehicles have invested this way for so long that the terms “ETF” and “passive” have become almost synonymous. Now, however, that is changing.

New data from financial-data service Morningstar Direct reveals that fund managers launched 476 actively managed ETFs in Europe and the US during the first half of the year, and only 234 new passive ones. Passive ETFs still account for $13 trillion of assets under management in the US and Europe, with only $1.2 trillion held in active funds. But the latter figure has more than doubled since the end of 2023, against 39% growth of passive ETF assets.

“Active ETFs have generated a lot of attention and launches are becoming more commonplace across Europe,” says Alex Watts, senior investment analyst at the investment platform Interactive Investor. “In the US, where adoption of the wrapper for active strategies has been quicker, there are now a greater number of active ETFs than conventional passive ETFs, although assets under management in the latter still far surpass the former.”

What's driving the active ETF trend?

First things first. It’s important to remember that an ETF is not an investment in its own right. Rather, it’s a structure or wrapper for holding a portfolio of underlying assets. Like alternative structures such as unit trusts, open-ended investment companies (Oeics) and investment trusts, ETFs enable investors to pool their money in a single fund; a professional manager then invests that money according to the fund’s mandate. That might be anything from a directive to invest in mainstream UK or US equities to something more esoteric.

ETFs turn 35 this year and have always been associated with passive investment. That’s partly because the first ETFs were developed in response to the global stock market crash of 1987. Analysts reasoned that market sell-offs might not have been so pronounced if a wider range of investors had owned diversified portfolios of equities; early ETFs, including the very popular S&P 500 SPDR, aimed to enable that broader ownership through funds that tracked the whole of the stock market.

The fact that the ETF industry has developed during a period when many investors have turned their backs on active management has also fuelled the notion that ETFs are purely passive vehicles. Investors who have grown wary of expensive active funds that fail to beat the market have turned to low-cost index trackers instead. ETF managers have responded to that demand.

In practice, however, there is nothing about the structure of an ETF that limits it to passive investment. Active ETFs operate in exactly the same way as any other collective fund that has a goal of beating the market in which it invests. The manager buys and sells holdings according to their views about what will drive outperformance. As Morningstar’s data underlines, this is a fast-growing sub-sector of the ETF market. The biggest names in active ETFs currently include JPMorgan, Amundi, Fidelity and BlackRock, but more managers are joining them. Jupiter and Lazard have both launched their first active ETFs this year. Aviva Investors is not far behind them.

It’s the advantages of the ETF structure that is driving this trend argues Tom Bailey, head of research at HANetf, the specialist ETF business. “The ETF wrapper is what investors want, whether they’re looking for a passive or an active investment strategy,” Bailey says. “Awareness of the benefits of ETFs continues to grow.”

Benefits of active ETFs

In particular, investors buying ETFs get much more transparency on price. The price of a stock market-listed ETF is available in real time, with investors given upfront information about what they’ll need to pay to get into the fund. By contrast, mutual funds such as unit trusts and Oeics are priced at the end of each trading day; investors won’t typically know exactly what they’re paying for the fund until after the transaction has competed. “There aren’t many products where customers are expected to agree to buy without knowing the exact price at the time of purchase,” says Bailey.

With many European ETFs, there’s also a tax benefit. Most of these funds are domiciled in Ireland, enabling them to pay lower withholding tax on dividends from US shares – typically 15% instead of 30% – through a treaty between these two countries. Over time, this tax efficiency can make a real difference to returns, especially for ETFs with a great deal of US equity exposure.

Another argument for active ETFs is a more technical one. The Bank for International Settlements (BIS) notes that the fact that ETFs are listed on a stock exchange makes it easier for investors to hold managers to account. For example, it is possible to sell ETF shares short. That leads to increased discipline compared with mutual funds, the BIS concluded, with ETF managers more likely to be forced out following a period of underperformance. In theory, that should lead to better long-term returns. Naturally, there are no guarantees. “As with other types of active funds, the ultimate success or failure of an ETF is down to the skill of the manager picking the stocks,” says Ben Yearsley, a director of wealth-management firm Fairview Investing.

Do active ETFs have any downsides?

It should also be pointed out that the ETF structure comes with certain downsides. These funds are open-ended – meaning the manager creates new shares or cancels them as investors buy or sell – which can cause problems in the context of their stock market listings. ETFs only function effectively when used to hold very liquid asset classes, such as mainstream equities and bonds. For investors looking for exposure to other asset classes, such as illiquid infrastructure, property or private equity, say, a close-ended investment trust will usually be a better option.

There’s also the question of cost. Passive ETFs are cheap to run and have often competed on the basis of ultra-low charges. Actively managed funds, by contrast, require significant resources, from costly research to the manager themselves. “Active ETFs are typically priced similarly to investment trusts and the cheaper end of the Oeic market,” adds Yearsley.

“This may hinder the long-term growth of active ETFs, because there is a mismatch between perception and reality on costs.” In other words, investors who have always thought of ETFs as cheap may baulk at being asked to pay more, even if they’re actually getting more for their money.

Nevertheless, ETF experts expect more managers to expand their active fund ranges. “For fund houses, it makes sense to offer strategies across multiple wrappers – Oeics, investment trusts and ETFs,” says Bailey. “As the ETF wrapper becomes more familiar, particularly with younger investors, the logic of meeting the investor where they are is clear.”

Regulatory reform is also helping. Traditionally, one factor militating against the use of ETFs for active investment strategies has been the way that stock-market-listed funds are regulated. Until recently, funds listed on public stock exchanges were required to publish full details of their entire portfolios on a daily basis. For active managers seeking to outperform their competitors or to build up positions in new holdings, that was problematic. However, US regulators eased the rules on disclosure in 2019 – with other jurisdictions, including Ireland and Luxembourg, subsequently following suit – which has helped with this issue.

ETFs remain more transparent than other types of collective vehicle, with managers publishing extensive data on their holdings. Indeed, this is another attraction for many investors in these vehicles. However, active managers are no longer required to provide a running commentary on every aspect of their investment strategy, easing their concerns about this type of wrapper.

One key question is what active means at a particular fund. “[A] simple definition is an ETF where a manager is making investment decisions in order to outperform a given benchmark, rather than just replicate the return from it,” points out Watts.

Understanding active ETFs

There are certainly variations on the theme. Some active ETFs are active in the traditional meaning of the word, with managers running unconstrained investment processes. Others are much more limited, relying on computer-driven strategies that move away from benchmark indices to a minimal extent.

Sometimes described as “shy active” or “benchmark-aware” ETFs, these funds tend to be cheaper, but aren’t active in the conventional sense. That’s not a problem, if investors understand the fund’s mandate, but the performance of such an ETF is unlikely to deviate significantly from the benchmark.

The key, as always in investment, is to understand what you’re buying. In large part, the trend towards active ETFs represents a view that active investment strategies can be worth paying for. Assuming you can identify a good manager, you’re accessing the potential to outperform the market – including at times when asset prices are falling, when an active strategy may be able to offer some protection.

If you buy that argument, there is then a decision to make about the best structure for accessing active management, particularly as growing numbers of managers now offer near identical funds under several different wrappers. Watts believes there is a clear case to be made for the ETF structure. “Active ETFs are an exciting development for investors given the ease of trading and live pricing throughout the day versus a generally slower process of purchasing mutual funds with non-continuous pricing.”

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Revolut customers will now be able to invest in exchange-traded-funds (ETFs) directly through the bank’s app as the fintech launches its first stocks and shares ISA.

The ISA will allow the bank’s 11 million UK customers to invest between £1 and £20,000 into the easy access tax-free wrapper.

As well as ETF options from Vanguard and BlackRock, users will also have access to other ETF providers via the Revolut app.

With diverse offerings, users can invest across various sectors and geographies with the convenience that comes with ETFs.

Yana Skrebenkova, CEO of wealth and trading UK at Revolut, said the introduction of the stocks and shares ISA was part of an effort by the bank to “break down the barriers” that stop Brits from investing.

She added that the ISA offering will “give our UK customers access to more low-cost investment tools alongside their day-to-day spending, without navigating multiple platforms.”

When will the Revolut ISA be available?

The Revolut stocks and shares ISA will be available within a matter of weeks – and those with an ISA elsewhere, can also transfer their ISA in.

If you are considering an ISA transfer, be sure to let your providers know and follow the correct procedure or you could lose the tax shield.

Revolut said launching its stocks and shares ISA was part of a wider drive to help normalise investing and help customers build long term wealth.

This rhetoric is similar to that of Rachel Reeves in recent months who has said she wants to build a "culture of investing” in Britain.

To achieve this, the chancellor is expected to announce a cut to the cash ISA limit at her Mansion House address on 15 July in an attempt to direct more money into the stock market via the stocks and shares ISA.

How does Revolut’s stocks and shares ISA compare?

By allowing customers to invest in stocks and shares from their banking app, Revolut will compete with fellow digital bank Monzo, which also launched an ETF offering earlier this year.

Monzo’s currently has 11 funds managed by BlackRock on offer, plus the option to ‘Build your own’ ETF.

While you can also have a stocks and shares ISA with a number of platforms, having one attached to your banking app could make it easier to start investing and manage your money.

If someone tells you their investment portfolio is mostly made up of exchange-traded funds (ETFs), what does that tell you about their approach to investing? Until recently, the obvious conclusion would be that they’re a passive investor – someone who prefers gaining exposure to broad market indices such as the S&P 500, FTSE 100 or MSCI World, rather than picking stocks that might outperform these benchmarks.

That assumption wouldn’t have been misguided. Over the past three decades, ETFs have, wrongly, become shorthand for passive investing. The world’s biggest ETF tracks the S&P 500. Broad, index-tracking ETFs dominate the inflow tables. But that association is starting to fray.

The wrapper advantage

An ETF is a fund structure, not an investment strategy. There's nothing about an ETF wrapper that confines it to passively tracking an index. It's a structure that can facilitate any strategy – including active ones. And increasingly, it does.

The United States is leading the charge. Currently, active ETFs account for almost 10% of all assets under management (AUM) within the US. In the UK, we’re still at the early stages. But change is underway. In recent years, well known asset managers, such as Jupiter Asset Management and Guinness Global Investors, have started offering their active strategies in an ETF wrapper. Looking at Europe as a whole, last year, the AUM of actively managed ETFs jumped by 68%.

Why now? For fund houses, this is about distribution. It makes sense to offer strategies across multiple wrappers – OEICs, investment trusts, and now ETFs. As the ETF wrapper becomes more familiar, particularly with younger investors, the logic is clear: meet the investor where they are.

Tax, liquidity and transparency

We believe investors increasingly favour owning their active strategies through an ETF wrapper. There are several reasons for this.

First, they can buy an ETF on a stock exchange throughout the trading day. There aren’t many products where customers are expected to agree to buy without knowing the exact price at the time of purchase. But this is common with mutual funds. When you place an order for a mutual fund on a platform, you typically receive the end-of-day price for the units in the fund, rather than the price when you submitted your order.

In contrast, ETFs are traded live on a stock exchange. When you buy an ETF through your platform, you transact at the current market price, providing greater transparency and immediacy. In an on-demand world, the mutual fund structure seems outdated and cumbersome.

Investors are also often drawn to the broader transparency ETFs offer. Unlike mutual funds, ETFs have traditionally disclosed their holdings daily, giving investors clear insight into what they own. While regulators are now easing this requirement, if the UK and Europe follow recent developments in the US, many asset managers are still likely to maintain full daily disclosure.

For many ETFs, there’s also a tax benefit. It’s different from the tax advantage that ETFs enjoy in the US, but still important. The majority of London-listed ETFs are domiciled in Ireland, allowing them to pay lower withholding tax on dividends from US shares - typically 15% instead of 30%. Many mutual funds don’t get this benefit. Over time, this tax efficiency can make a real difference to returns, especially for ETFs with a lot of US equity exposure.

Active will be the new normal

In a few years’ time, someone telling you they invest in ETFs won’t really tell you much about whether they are an active or passive investor. Saying you’re an ETF investor will simply mean you prefer a more transparent, liquid and tax-efficient way of accessing the market. The ETF, we believe, will become the default fund structure for most investors.

At HANetf, we're aiming to build Europe's most diverse lineup of truly active ETFs. No closet trackers or “shy active”. Rather, we are creating bold, differentiated actively-managed strategies - from thematic plays in healthcare and clean energy, to global and regional fixed income to high-conviction core equity – all within an ETF wrapper.

You can discover HANetf’s full range of active ETFs at hanetf.com.

Around 12 million customers will now have access to Blackrock's iShares exchange-traded funds (ETFs) range via the Monzo banking app.

Blackrock is one of the largest fund managers in the world and one of the first to launch ETFs via its iShares range almost 30 years ago.

And now, 11 of the iShares ETFs will be available for Monzo customers to invest with ease. Nearly half (47%) of savers tend to put off investing because the overwhelming number of choices makes it difficult to start, Monzo's research found.

Exchange-traded funds (ETFs) have become a commonplace part of the investment landscape. In just 35 years since the first ETF launched on the Toronto Stock Exchange, the amount of money invested in ETFs has reached $15 trillion as of the end of April 2025, according to data from ETF research house ETFGI.

With Monzo, users will be able to pick a range of ETFs and build their own portfolio.

Monzo's ETF offer - how will it work?

Monzo launched a pilot of its 'Build Your Own' ETF investing feature on 17 June. Having offered a robo-adviser service that lets investors put their money into any of three pre-built investment pots, Monzo users can now take a more active approach to investing in ETFs.

“This new ETF offering is the next step in making investing even easier and more personal,” said Andy Smart, chief product officer at Monzo.

The pilot allows Monzo users to invest into any of 11 ETFs, all issued by BlackRock’s iShares, investing as little as £1 at a time. The ETFs available to invest in are:

• iShares Core S&P 500 UCITS ETF
• iShares Core FTSE 100 UCITS ETF
• iShares MSCI Emerging Markets UCITS ETF
• iShares Core MSCI Europe UCITS ETF
• iShares Core MSCI World UCITS ETF
• iShares NASDAQ 100 UCITS ETF
• iShares Healthcare Innovation UCITS ETF
• iShares Metaverse UCITS ETF
• iShares Global Clean Energy Transition UCITS ETF
• iShares Blockchain Technology UCITS ETF
• iShares Automation and Robotics UCITS ETF

This selection of global and thematic options gives investors “simple, clear options with just the right amount of choice”, according to Smart. It reflects the results of Monzo’s research into would-be investors’ greatest interests.

The pilot is initially only available to Monzo users who haven’t yet used any of its investment offerings, with 25% of eligible customers being given access each week for the first four weeks from 17 June. Any Monzo users who haven’t yet invested with Monzo should see the product appear in their app at some point during this period.

Later this year, once the pilot is complete, the offering will be rolled out to all Monzo users.

What are the benefits of ETF investing?

There are various benefits to using ETFs to invest. “They offer diversification, with a single ETF typically holding a broad range of securities,” said Raymond Backreedy, chief investment officer at Sparrows Capital.

That can include multiple asset classes, such as stocks and bonds: Vanguard’s LifeStrategy range, for example, offers investors ready-made portfolios in varying ratios of stocks to bonds, as a convenient means of balancing risks.

“They’re transparent in that most ETFs disclose their holdings daily, so investors know exactly what they own,” Backreedy continued.

Because ETFs trade on a stock exchange like an equity, they also offer liquidity and flexibility. Most core ETFs also benefit from low expense ratios since many of them are index trackers.

“ETFs have quietly become one of the most powerful tools available to retail investors. They offer low-cost, instant access to diversified portfolios,” says Rahul Bhushan, managing director at ARK Invest Europe.

How do I invest in an ETF?

One of the great advantages of ETFs is that they trade just like an individual stock on a stock exchange. That means they can be bought and sold in real-time, directly into your stocks and shares ISA.

You can buy an ETF from brokerages like Hargreaves Lansdown or AJ Bell, and there are also a range of investment platforms that specialise in ETFs.

InvestEngine, for example, offers zero account fees on ETF investing. As well as Monzo, other products like Moneybox offer investors a selection of ETFs that they can add to a stocks and shares or Lifetime ISA.

The Financial Conduct Authority (FCA) is to consult on lifting the ban on selling cryptocurrency Exchange-traded notes (ETNs) to retail investors in the UK.

ETNs are similar to an exchange-traded fund (ETF), but they are technically debt instruments that mirror the performance of a specific asset. A crypto ETN would track the price of a specific cryptocurrency, such as bitcoin.

They are available to professional investors in the UK, but the FCA has banned their sale to individual (DIY or retail) investors since 2021 – despite similar products like the iShares Bitcoin Trust having more than doubled since they were launched in the US at the start of last year.

But the decision today (6 June) could reverse this ban, as long as the crypto ETN is traded on an FCA-approved investment exchange. The sale of crypto ETNs would also be subject to financial promotion rules, to ensure that customers were aware of the risks involved and weren’t missold the investments.

“This is a landmark moment for the UK digital asset market,” said Russell Barlow, CEO of 21Shares, which issued the London Stock Exchange’s first physically-backed crypto ETNs (for professional investors) in 2024.

“We fully support the FCA’s move to provide regulated access to crypto ETNs for retail investors,” Barlow added.

Bitcoin prices hit $100,000 for the first time in December and have gone on to reach new all-time highs this year.

What is the FCA’s approach to crypto regulation?

The decision to potentially allow crypto ETNs has come as part of the FCA’s ongoing crypto regulation roadmap.

“This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry,” said David Geale, executive director of payments and digital finance at the FCA. “We want to rebalance our approach to risk and lifting the ban would allow people to make the choice on whether such a high-risk investment is right for them, given they could lose all their money.”

The FCA is also looking into the possibility of issuing stablecoins – cryptoassets that are pegged to a fiat currency in order to (hopefully) stabilise their value – and has consulted with the Bank of England in creating a stablecoin regime.

“We want to strike a balance in support of a sector that enables innovation and is underpinned by market integrity and trust,” said Geale.

Can UK investors buy crypto ETFs?

Technically, the products that have been green-lit by the FCA will be ETNs, but these function similarly to crypto ETFs.

Some experts hope that by allowing UK investors to buy crypto ETNs, it could lead to crypto ETFs being permitted in future.

“Hopefully it is a good omen for a future in which fully regulated derivatives and ETFs are available, giving UK retail investors real choice while keeping the traditional ‘you-could-lose-everything’ warnings front and centre,” said Dan Moczulski, managing director at eToro UK. “Perhaps it also nudges us closer to the day when a crypto ETF will be able to sit inside a stocks and shares ISA, meaning more freedom for tax-savvy investors.”

It isn’t yet clear when DIY investors in the UK will be able to buy crypto ETNs. A consultation on the proposal is taking place until 7 July.

If investors want to gain exposure to crypto price movements, there are some options already available to them.

They could buy a stock like MicroStrategy, which was one of the most-bought stocks during May on Interactive Investor. MicroStategy is the world’s largest corporate holder of bitcoin; its CEO Michael Saylor is a bitcoin proponent and has been accumulating the cryptocurrency on the company’s balance sheet since August 2020.

Be warned, though, that because MicroStrategy uses leverage (i.e. debt) to do this, its share price can be even more volatile than bitcoin prices.

For less volatility, whilst still offering exposure to crypto market movements, investors could select a crypto-related ETF, like the Invesco CoinShares Global Blockchain UCITS ETF (LON:BCHN). This holds crypto-related stocks like MicroStrategy and Coinbase, as well as other companies that are making use of the broader world of blockchain technology, such as MercadLibre.

Active ETFs are on the rise, with assets held in these funds rising nearly 70% last year in Europe.

While often thought of as passive instruments, actively-managed exchange-traded funds (ETFs) are surging in popularity.

Research from HANetf shows that assets under management (AUM) by European active ETFs increased 68% to $55.43 billion last year. Net inflows into European active ETFs totalled $19.46 billion during 2024, and according to HANetf’s latest Exchange-Traded Europe Q4 2024 report, 94% of European wealth managers are planning to make greater use of active ETFs over the next year.

“A few years ago, if someone said they used ETFs in their portfolio, it would have been fair to assume they were using passive, index-tracking strategies,” says Tom Bailey, head of research at HANetf.

“This is rapidly changing,” he continues. “Investors are increasingly recognising that ETFs are simply a fund structure – a wrapper that can hold both passive and actively-managed strategies.”

What is an active ETF?

As Bailey points out, an ETF is simply a wrapper. It can designate almost any type of fund strategy: the defining characteristics of ETFs are that they trade in real-time on a stock exchange, and that they use a creation and redemption mechanism to create (and remove) new shares as demand for the ETF changes.

Without going into the technicalities of how the creation and redemption mechanism works, that means that the price change of an ETF always corresponds to the price change of the assets it holds. That distinguishes ETFs from investment trusts (also known as closed-ended funds) which have a fixed number of shares, and can therefore trade at a premium or discount to the value of their assets (net asset value, or NAV).

ETFs, though, always trade in line with their NAV.

Within these parameters an ETF can do almost anything. They gained popularity as tracker funds, passively reflecting the price changes of an index, such as the S&P 500.

As such they are often misconstrued as passive instruments, but there is no reason why an ETF can’t pursue an active strategy. In this instance, the ETF will replicate an actively-managed portfolio constructed by a professional portfolio manager.

That, at its heart, is an active ETF: an actively-managed strategy wrapped in the ETF structure.

Four active ETFs to consider buying

As a demonstration of the range of active ETFs available to investors, here are four that demonstrate a breadth of risk-on and risk-off approaches

Guinness Sustainable Energy UCITS ETF (LON:CLMA)

Sustainable energy is a favourite sector for long-term investors, particularly those with an active mindset.

This ETF invests in sustainable energy producers and companies involved in sustainable energy storage, as well as the electrification of energy demand. It excludes fossil fuel producers.

Actively managed by Guinness Global Investors, this fund, like investing in copper, is effectively a long position on the energy transition.

Invesco Global Active Defensive ESG Equity UCITS ETF (LON:LVLG)

This active ETF can add a defensive element to the portfolio of any investor worried about stock market volatility. Its portfolio is distributed among companies that are screened for low volatility, whilst also aiming to outperform the MSCI World Index. Companies are also screened for their ESG credentials.

All that said, there are some strong growth stocks in the fund’s holdings, including Microsoft and Nvidia.

Fidelity Pacific ex-Japan Equity Research Enhanced UCITS ETF (LON:FPXS)

With fees of just 0.2%, this is one of the cheapest active ETFs on the market. As the name suggests, it tracks a portfolio of equities from the Pacific region, excluding Japan.

Fidelity also issues a US equities active ETF with the same fee, for anyone seeking actively-managed US exposure. That is the Fidelity US Equity Research Enhanced UCITS ETF (LON:FUSS).

Jupiter Global Government Bond Active UCITS ETF (LON:GOVE)

This is an intriguing strategy that was launched as an active ETF in February. The strategy, managed by Vikram Aggarwal, aims to identify mispriced sovereign bonds from across the globe by comparing Jupiter’s assessment of national economies to the market’s expectation.

Active ETFs can also be a means towards investing in bonds, not just equities.

The value of assets under management (AUM) by global exchange-traded funds (ETFs) has surpassed $15 trillion, according to research from ETF issuer HANetf.

Depending on how you measure it, there are two different stories to tell about the ETF market. Data from interactive investor suggests that ETFs fell in popularity, relative to alternative products, late last year; its Top 50 Fund Index, which tracks the most-bought funds and trusts on its platform, shows a decrease in the number of ETFs in the top 50 from 19 during Q3 to 16 during Q4.

This did mean that ETFs remained the most popular product type on the investment platform, though they now share that mantle with investment trusts. “Despite a decline from 19 to 16, investors continue to favour ETFs,” wrote Kyle Caldwell, funds and investment education editor at interactive investor.

On the other hand, HANetf’s data, based on the total asset flows across the ETF industry, tells a strong story that ETFs are continuing to grow in importance as investment products.

European ETFs hold a total of $2.2 trillion in AUM, up $95.4 billion during Q4 2024. Core equity ETFs saw $145.9 billion in flows last year, while fixed income ETFs saw net flows of $66.2 billion.

European active ETFs in particular saw strong gains, receiving $19.6 billion in inflows through 2024. That drove a 68% year-over-year increase in AUM, bringing active ETF AUM to $55.4 billion.

_{Source: HANetf. All European AUM data sourced from ETFBook as of 31.12.2024. Global AUM data sourced from ETFGI as of 30.11.2024. No. brands calculated using ETFGI and HANetf data}

Interactive investor’s findings also support the increased popularity of active funds, with one more active fund making the top 50 during Q4 than in the previous quarter.

AUM in exchange-traded commodities (ETCs – effectively ETFs that track the price of specific commodities, such as gold) increased 21% during 2024 despite net outflows. That is, investors made net withdrawals from these funds, but the increase in value of their underlying securities (particularly gold and Bitcoin) outweighed these outflows.

Which are more popular – active or passive ETFs?

European active ETFs in particular were popular among investors, receiving $19.6 billion in inflows through 2024. That drove a 68% year-over-year increase in AUM, bringing active ETF AUM to $55.4 billion.

HANetf cited an independent survey of wealth managers across Europe in Q1 2025, that showed 94% of wealth managers across Europe expect to increase their use of active ETFs in the next 12 months.

This growth in active ETFs isn’t at the expense of their passive counterparts. Tom Bailey, head of ETF research at HANetf, tells MoneyWeek that “instead, the growth of active ETFs is coming at the expense of actively managed mutual funds".

“Investors are increasingly coming around to the idea that ETFs are a superior investment vehicle, whether it be for passive or active strategies,” he adds.

Why might investors favour ETFs over mutual funds?

According to HANetf’s survey, 68% of European wealth managers would switch to an ETF version of a mutual fund they currently invest in if one was available.

The reason for this, according to Bailey, is the increased liquidity and transparency that comes with the way ETFs are traded.

“There aren’t many products where customers are expected to agree to buy without knowing the exact price at the time of purchase,” says Bailey. “However, this is common with mutual funds. When you place an order for a mutual fund on a platform, you typically receive the end-of-day price for the units in the fund, rather than the price at the moment you submit your order.

“In contrast, ETFs are traded live on a stock exchange. This means that when you buy an ETF through your platform, you transact at the current market price, providing greater transparency and immediacy.”

Buying an AI exchange-traded fund (ETF) is a simple way to give yourself exposure to one of the biggest investment trends. But, with 2025 bringing fresh challenges to the US big tech firms at the forefront, is now the right time to buy an AI ETF?

Artificial intelligence (AI) has taken the world by storm since the launch of ChatGPT in November 2022. Since then, the top funds and stocks across the world have been dominated by big tech stocks like the ‘Magnificent Seven’.

With its cutting-edge AI chips underscoring this revolution, Nvidia recently became the world’s first $4 trillion company thanks to the surging importance of AI.

But the AI boom has its detractors. US dominance of the global industry came under threat earlier this year when Chinese upstart DeepSeek rocked stock markets.

US-focused ETFs have also seen outflows this year as president Donald Trump’s tariff policy has prompted global investors to consider selling US stocks.

“US equity ETFs dropped to their lowest level in 14 months in June,” commented Alastair Baillie Strong, global head of ETFs at Fidelity International. Geopolitical events such as the US’s intervention in the Middle East was one of the main contributors towards a $1.47 billion outflow from North America-focused UCITS ETFs during the month.

But some experts believe there is plenty more to come.

“AI capabilities are advancing exponentially, yet most businesses have barely begun to exploit them,” says Rahul Bhushan, Managing Director at ARK Invest Europe. “This gap between what’s possible and what’s been implemented is creating a massive opportunity.”

Bhushan adds that AI is also getting cheaper to deploy. “History shows that once transformative tech gets cheap and ubiquitous, adoption eventually inflects upward,” he says. “We expect a wave of enterprise AI adoption in the next few years (think 2025–2027), as the current hesitancy gives way to competitive pressure.”

The challenge in tapping into this opportunity comes in picking the eventual winners. “Companies at the forefront today might not be the leaders tomorrow,” says Bhushan.

Picking an ETF that invests in AI companies spreads your bets, giving you a greater chance of holding the eventual winners in your portfolio.

What kinds of AI ETF are available?

The first decision that applies to any ETF selection process is the active versus passive debate. Actively-managed ETFs tend to charge higher fees than passive equivalents, but they offer the potential to beat the market through the judicious trades of their portfolio manager. This isn’t guaranteed to happen (and in fact, some studies show that active management tends to underperform rather than outperform), but it can potentially lead to outsize returns.

“Active managers aren't bound by an index's rules,” says Bhushan. “This allows them to focus on a high-conviction ‘best ideas’ portfolio, selecting companies they believe have the strongest potential for growth within the AI ecosystem.”

It isn’t necessarily the case that all passive ETFs are the same. The selection and rebalancing strategy of their benchmark index can make a big difference to their returns.

Index construction also impacts the extent to which an ETF can be considered a true reflection of its stated objective (in this instance, AI exposure).

“If it is too broad, you can just end up with a lot of generalist stocks and an index that is more driven by general global trends rather than AI specifically,” says Ben Seager-Scott, chief investment officer at Forvis Mazars. “Whereas, if the index rules are too narrow, you can end up with a small number of obscure names that carry a lot of concentration risk and may not ultimately be the beneficiaries of the technology.”

As a demonstration of how it can differ even between four ETFs investing in the same theme, consider these four AI ETFs:

(*Price changes over the 12 months to 14 July 2025, except AIQU which shows returns since listing on 12 September 2024.)

Let’s have a look at the pros and cons of each ETF and explore what they potentially offer an investor’s portfolio.

1. INTL: targeted AI exposure

The WisdomTree Artificial Intelligence UCITS ETF (LON:INTL) tracks the NASDAQ CTA Artificial Intelligence Index.

This index assesses a broad universe of stocks' relevance to three categories (AI enablers, engagers and enhancers), and selects 15 companies (reviewed twice annually) from each based on the degree of their relevance. This gives its holdings a high level of relevance to the AI theme.

As of 14 July, INTL’s top three holdings are SK Hynix, Nvidia and Advanced Micro Devices – all of which are semiconductor companies key to designing and building the hardware that powers AI companies.

2. AIAI: quarterly rebalancing

The L&G Artificial Intelligence UCITS ETF (LON:AIAI) tracks the ROBO Global Artificial Intelligence Index. Like its Nasdaq counterpart, this index weights constituents based on their relevance to the AI theme.

However, it rebalances quarterly, meaning that there is twice as much buying and selling of the constituent stocks going on. Lots of investors like frequent rebalancing because it effectively automatically sells high, and buys low: assuming no change in relative AI relevance, stocks whose share prices have outperformed over the quarter will be sold, and those that have underperformed will be bought.

Though not for everyone (many investors prefer strategies that let outperformers run their course longer before taking profits), this makes AIAI an interesting option for investors that see the value in a quarterly rebalancing strategy.

3. AIQU: broad diversification

The newest of these four funds, the Global X Artificial Intelligence UCITS ETF (LON:AIQU) has outpaced INTL’s 19.4% price gains since its inception on 12 September, though it trails AIAI and ARKI’s during that time.

Its benchmark index, the Indxx Artificial Intelligence Index, uses a modified market cap-weighted approach that caps individual holdings at 3% and rebalances twice annually.

While this low cap could weigh on performance (by limiting the gains from individual outperformers), it does potentially make it appealing for investors worried about megacap concentration.

It has a very low concentration of Magnificent Seven stocks in its top holdings. At the time of writing, only Meta, Microsoft and Nvidia make its top ten, and none make its top five. Those spaces go to smaller companies like Palantir , the top holding at time of writing, and Chinese tech giant Tencent.

It therefore makes a solid choice for AI investors who want to diversify away from the main US megacaps.

4. ARKI: actively-managed AI

The ARK Artificial Intelligence & Robotics UCITS ETF (LON:ARKI) exemplifies the (often unfulfilled) promise of active management.

While the ETF only listed in April, it has already raced ahead of its three passive competitors, gaining over 60% over the last year. Investors holding the fund won’t mind an extra 35 basis points in fees when its returns are more than double that of the competition – though there is of course no guarantee that this will be the case over the long run.

With stock selection driven by ARK’s CIO and founder, Cathie Wood, investors can expect early-stage and little-known companies in this ETF, such as warehouse robotics company Symbotic, which has a market cap of just $28 billion.

Flows into gold ETFs totalled $3.04 billion in January, more than tripling the total global flows seen the previous month. European gold ETFs accounted for more than the global net total, though, as North America posted $500 million of outflows.

ETFs are a popular means of investing in gold, and flows in and out of these products can often give a sense of which markets and events are driving gold demand.

Gold prices hit record highs during 2024, gaining 29.3% and outperforming many of the major stock market indices in the process. The yellow metal has gone on to bigger and brighter things already in 2025, peaking at just under $2,940 per troy ounce on 11 February.

January this year marked the second consecutive month of positive gold ETF flows, according to data from the World Gold Council.

Gold funds registered a net $3.4 billion inflows during the whole of 2024, bringing total assets under management (AUM) to $271 billion – the highest they have ever been. 2025 has got off to a positive start, with physically-backed gold ETFs adding $3 billion of assets in January.

There has historically been a close link between gold ETF flows and the gold price. Adrian Ash, head of research at BullionVault, tells MoneyWeek: "ETFs have played a huge role in gold’s long-term bull market so far this century, helping make it the best-performing asset bar none of the past 25 years."

Regional gold ETF flows

The strongest demand came from Europe, in particular the UK, which saw $1.57 billion of fund flows during January – the largest of any individual country – and Germany, which came second with flows of $1.17 billion. European gold ETFs as a whole registered fund flows of $3.42 billion during the month.

Having been a major driver of 2024’s gold rally, Asian fund flows fell back from $748 million in December to $57 million. There was some variation within the region: Indian funds posted record inflows of $400 million during the month, but China, which had been a key driver of flows last month, saw nearly the same level of outflows.

North America posted its second consecutive month of gold ETF outflows, with president Trump’s inauguration reversing a trend of positive flows that had kicked off the month. In total, $499 million of funds flowed out of North American gold ETFs in January.

Source: World Gold Council

Which gold ETFs saw the largest inflows?

The gold ETs that saw the biggest positive flows during January were:

Source: World Gold Council

The iShares Physical Gold ETC (LON:SGLN) saw the largest inflows during January, underscoring the extent of investor demand in the UK.

Three of the top ten ETFs for January inflows were UK-based, along with three from Germany and two from Switzerland. Only one US gold ETF made the top ten.

Which gold ETFs saw the largest outflows?

At the other end of the scale, these gold ETFs saw the largest outflows:

Source: World Gold Council

Three of the top ten ETFs for January outflows were based in mainland China, though the fund that registered the largest outflows in the month was the US’ SPDR Gold Shares ETF.

The return you get when buying a bond and holding it to maturity is set at the outset: it’s the yield to maturity when you buy. Yet the market value of the bond between now and maturity can vary greatly as short-term and long-term interest rates change. Investing in a bond fund, which holds a portfolio of bonds of different maturities, makes this even more complicated since the value of the fund will depend on how the value of all the bonds it holds is shifting.

To see this in practice, consider an exchange-traded fund (ETF) such as iShares Core UK Gilts compared to a 10-year government bond. The ETF doesn’t just hold 10-year bonds, but its average maturity is roughly that – 11.5 years now – so it should be a fair comparison (although the exact composition of its portfolio and the way that this has changed over time will affect whether it’s really a good match).

If you bought a 10-year gilt in November 2014, you would have got a yield of around 2.1%, and so your annualised return would have been 2.1%. On the other hand, the 10-year total return from buying the ETF and holding it until now – including interest payments – is around -0.5% per year. The fall in the ETF’s market value is because it holds many bonds that were bought on much lower yields and are now worth less than they were because interest rates have risen.

This works the other way as well. If you bought a 10-year gilt in July 2010, your yield was around 3.5%. If you had bought the ETF and held it until July 2020, when yields bottomed, you earned about 7.7% per year (because it held bonds bought at higher yields that had risen in value).

As you go through a full interest-rate cycle, and as bonds mature at face value and are replaced, this slowly works its way through, and the return should become much closer to the yield at which you bought.

The chart above, which shows the 10-year gilt yield against the market price of the ETF (ie, ignoring all interest payments) broadly indicates how this works. But that takes time.

Consider bond ETFs with a fixed maturity date

There is another kind of bond ETF that has been available in the US for a while and is finally starting to arrive here. These have a fixed maturity: they hold bonds maturing at around the same time, and when the entire portfolio matures, the ETF liquidates and makes a final payment. So the ETF will behave much more like owning an individual bond of a given maturity.

iShares now lists 38 of these in the UK (it calls them iBonds), covering US Treasuries maturing every December from 2025 to 2029, as well as some dollar and euro corporate bonds and – oddly – Italian government bonds. DWS has 12 euro corporate trackers in its Xtrackers range, Amundi has four euro government bond funds, and Invesco has 25 dollar and euro funds, branded as Bulletshares. The only ones that look very useful to me so far are the iShares Treasury iBonds and it would be good to have some longer maturities (the range in the US is much greater). Still, they could be a useful tool for fine-tuning the bond exposure in an ETF portfolio.

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When Donald Trump was first elected in 2016, I said that whatever else he did, he would surely build things. His background in real estate and his fondness for grandiose plans seemed to make it a certainty. History shows that he did not: it was only under Joe Biden that America began a major infrastructure programme. Whether many of these projects carry on under Trump or get cancelled for other priorities will soon be seen but, in any case, it was a lesson in the difficulty of predicting what governments will achieve.

That’s why there are no changes to make to the MoneyWeek strategic ETF portfolio, just as there would have been none had Kamala Harris won. The aim of the portfolio is to do okay in all likely scenarios, rather than take big bets on any one outcome. That doesn’t mean that it will look the same in a year’s time, but we are not rushing to change our bond holdings on the basis that Trump will bring bigger deficits and higher yields.

What's in the MoneyWeek ETF portfolio today

Still, this is a good time to recap what ETFs we hold and why. We use Invesco US Treasury Bond 0-1 Years GBP Hedged as a proxy for risk-free cash, although in practice, anybody following this portfolio probably uses anything from cash savings accounts to money market funds. Ideally, we would use a very short-term UK government bond fund, but no such ETF exists, so we use US bonds and hedge the currency exposure.

Conversely, the use of iShares $ Treasury Bond GBP Hedged is a deliberate choice over similar ETFs for UK government bonds – US government bonds are the global safe-haven asset in times of trouble. We hedge because we do not want to complicate this position with short-term currency volatility. We hold iShares $ TIPS for US inflation-linked bonds, rather than UK inflation-linked bonds, because the UK market is distorted by heavy buying from pension funds and US yields are more attractive. We do not hedge the currency here, because this is intended to protect against long-term inflation risks. If UK inflation is especially bad we’d expect sterling to continue its long-term decline against the dollar.

We hold an equal amount in each of our core equity positions: Vanguard S&P 500, Vanguard FTSE Developed Europe, Vanguard FTSE Japan and iShares Core MSCI Emerging Markets. This is a long way from their global weights (the US is 65% of the MSCI ACWI) and reflects their valuations: the US deserves to be more expensive than most other markets, but the gap remains very wide and the reliance on the tech sector to keep the bull market going increases the risks.

Real-estate stocks struggled after the pandemic, but iShares Developed Markets Property Yield has started to perform a bit better this year, largely due to the prospect for interest-rate cuts. Last, SPDR MSCI World Energy and iShares Physical Gold are here to buffer the portfolio against inflation and shocks. The latter has been doing that job well as the gold price hits new highs. The oil price has softened, but the unloved oil majors are still profitable at these levels, while offering some protection against an energy crisis in an increasingly volatile and dangerous world.

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Investors looking for income should take a look at the best dividend ETFs on the market.

ETFs provide flexibility other structures do not, which can make them a good way for investors to build exposure to different market themes.

ETFs vs open-ended funds: What’s the difference?

This subject can be a bit complex, so I will try and keep it as simple as possible. There are really two different categories of investment funds, open-end investment funds and closed-end funds.

Open-end funds take money from new investors, invest this cash in the portfolio and then issue new shares in the fund to the new investor (shares are bought back when investors exit). This structure means it is difficult to hold less liquid instruments like bonds and small-cap shares as it might be harder to acquire these assets in the quantities required to satisfy investor contributions and deposits.

Meanwhile, closed-end funds have a limited number of shares in issue (although they can issue more). As such, managers always know how much capital they have available to invest, and can deploy it accordingly.

A quirk of this structure is that closed-end funds can trade at a discount to their underlying net asset value if more investors are selling rather than buying (or at a premium if the situation is reversed). That can’t happen with open-end funds as these investors will have their shares bought back.

Investment trusts are a good example of closed-end funds, while Lindsell Train Global Equity is a great example of an open-end investment vehicle.

ETFs bridge the best of both worlds. They have a fixed number of shares in issue, but can issue and buyback stock if needed at any point.

What’s more, unlike most OEICs and unit trusts, shares can be bought and sold at any point in the trading day. This means it is easier for investors to convert their assets to cash. It can take several days to exit open-end funds.

Low costs means more money for investors

A handful of providers dominates the ETF market, which gives the asset class another advantage over traditional funds.

Most ETFs track market indices, meaning costs are quite low to begin with. However, the economies of scale in the industry have pushed costs down even further. Some of the best dividend ETFs don’t track an index, but do offer lower costs than their actively managed competitors.

Still, a disadvantage of using these vehicles is the fact that as most are designed to just track indexes – they won't outperform.

So there are benefits and drawbacks to using ETFs to invest. Some investors might prefer the strategy, while others might want to avoid it altogether.

The best dividend ETFs on the market today

For those investors who think ETFs offer something different, here are the five highest-yielding income ETFs on the market today.

All of the ETFs listed above are designed to track an equity income index. I should also note that the yield figures above are a trailing 12 month historical basis. Therefore, they may not be reliable indicators of future income.

These funds have made it onto MoneyWeek’s list of the best dividend ETFs due to their low costs and high yields.

I also like the international diversification offered by the likes of the Fidelity Global Quality Income ETF and FTSE All-World High Dividend Yield UCITS ETF.

Both of these funds own geographically diversified portfolios of equities. Although their overriding aim is to generate income, their global focus also means that they have a better track record of producing capital growth as well.

The Fidelity Global Quality Income ETF also has a great deal more flexibility in its investment mandate. It does not have to track an index, and so far, this has helped the fund outperform the Global Equity Index benchmark. Over the past five year the fund has produced a total cumulative return of 74% compared to 36% for the benchmark.

The iShares UK Dividend UCITS ETF tops the list of the best dividend ETFs on a yield basis. The £860 million fund is dominated by FTSE 100 dividend giants such as Imperial Brands (LSE: IMB), Rio Tinto (LSE: RIO) and Legal & General (LSE: LGEN).

Owning this ETF could also help investors build exposure to a basket of cheap UK blue-chips. The average price-to-earnings (P/E) ratio of the portfolio is 8.5.

That said, the fund is one of the more expensive options on this list with an ongoing charges figure of 0.4%. While still much lower than the average price investors will pay for an active fund, it’s still a bit on the high side for an ETF.

Oil prices have risen sharply since the outbreak of the conflict in Iran, and the chances are that you’ve felt the consequences in your portfolio as well as at the pump. But some investments can offer at least a measure of protection against higher oil prices.

Brent Crude oil futures have closed above $90 every day since 11 March, with the conflict in Iran having effectively closed the Strait of Hormuz – a critical shipping lane through which around 20% of the world’s oil passes.

“The huge disruption to oil and natural gas supplies in the Middle East over the past three months has materially tightened energy markets near-term,” said Mark Hume, co-manager of BlackRock Energy and Resources Income Trust. “The impact on liquified natural gas exports, primarily to Asia, has been even more pronounced.”

When oil prices rise, some of your other investments are likely to fall.

Given most of the world’s industry relies on oil and gas as inputs, higher oil prices have caused chaos in most stock markets and economies.

But high oil prices aren’t bad news for everyone. Some companies – such as oil and energy suppliers – could profit from higher oil prices.

British oil major BP (LON:BP.), for example, reported on 28 April that its underlying replacement cost profit (a measure commonly used by oil and gas companies that factors out inventory gains and losses) more than doubled to $3.2 billion in the year to Q1 2026.

BP’s profit jump was boosted by higher prices, according to Mark Crouch, market analyst at investment platform eToro.

“In many respects, BP has both absorbed and benefited from the same geopolitical tensions, with volatility once again proving a tailwind for an integrated major,” said Crouch.

Its success saw BP make the list of the most popular stocks among DIY investors using Interactive Investor’s platform during May.

How else can you profit from oil and energy price rises, and compensate for all the increased cost that rising energy bills and petrol prices bring?

The risks of investing in oil

Before going into how to invest in oil and energy you should remember that, as recent events have proven, oil prices are highly volatile.

“Investing [in oil and energy] via an exchange-traded product (ETF) that aims to follow the price can risk being whipsawed,” said Rob Morgan, chief investment analyst at Charles Stanley Direct.

Morgan also cautioned that many investors might already have reasonable oil exposure within their portfolios, if (for example) they hold assets tracking the FTSE 100 which includes several oil majors like Shell (LON:SHEL) and BP.

“It is important to avoid unwittingly doubling up on exposure,” said Morgan.

How to invest for higher oil prices

That said, it could make sense, depending on where else you are invested, to allocate a small part of your portfolio to focused oil investments in order to shield yourself from price shocks and the consequent inflation.

“Energy equities can protect a portfolio in certain inflationary scenarios but can also underperform for long stretches when the commodity cycle turns or policy shifts,” said Morgan. “This is why they should generally only be held in small quantities, for instance up to 5%.”

As well as holding oil price-friendly assets, it is also important to remain diversified.

“Diversification and explicit geopolitical hedges remain essential,” said Daniel Casali, chief investment strategist at wealth manager Evelyn Partners. “These include gold, hedge funds, inflation‑linked bonds, short‑duration sovereign bonds and energy equities.”

If you feel your portfolio could do with a barrel or two of extra oil price exposure, then there are several ways you can add it:

• Oil and energy stocks like Shell, BP or Harbour Energy (LON:HBR). These stocks gained 5.8%,19.8% and 12.5% respectively between 27 February and 27 April.
• Funds or ETFs that invest in oil and energy companies, offering diversified exposure to stocks like these. Some examples are the SPDR MSCI Europe Energy UCITS ETF (LON:ENGE), which tracks large- and medium-cap energy companies in Europe, and the iShares Oil and Gas Production UCITS ETF (LON:SPOG), which has a broader international footprint (nearly three quarters of holdings are based in the US and Canada, with most of the rest hailing from Australia, Japan and Norway).
• An exchange-traded commodity (ETC) can act as a simple way to track the oil price. One example is WisdomTree WTI Crude Oil (LON:CRUP), which offers investors total return exposure to WTI Crude Oil futures contracts.

Additionally, several investment trusts offer exposure to oil and energy companies. These include:

^{Source: theaic.co.uk / Morningstar (as at 21/05/2026 based on latest available published portfolio weights).}

Thematic funds – those that track a big, long-term trend – are popular with investors, but less so among more disinterested observers and analysts.

A few years ago, Nicolas Rabener, who runs a fantastic research firm called FactorResearch that makes its superb analysis free to use, looked at the three-year record of carefully chosen thematic funds against a broader benchmark. He found that many of the earlier thematic strategies underperformed, probably because they were chasing the wrong stocks.

“Once an industry outperforms, investors flock to it in a chase for performance, which often leads to expensive valuations,” he said. “Eventually mean-reversion sets in, and with it less attractive subsequent returns.”

The wrong approach

Joachim Klement, a strategist at investment bank Liberum, is another sceptical smart analyst. In one of his blogs he notes that many thematic indices “all have a large bet against value stocks and against profitable “‘quality’ stocks”. Instead, they are heavily geared towards glamorous, expensive and unprofitable stocks – and thus funds following them are “likely to invest in overpriced and overhyped stocks”. The better bet has been to invest in the unloved, non-thematic baskets of stocks, such as coal and tobacco companies.

I could also add my own criticisms. Many thematic indices and funds sweep up a load of businesses with tangential links to a major theme – eg, crypto-related thematic funds investing in Microsoft. Still, I think that many dismissals of thematic funds are slightly missing the point. They aren’t meant to be compared with broad indices such as the MSCI World – they are a way for investors to play a particular idea as a more speculative part of a diversified portfolio. The most useful thematic ideas are those with specific frames of reference and small baskets of stocks.

For example, if airlines are about to boom again, you can buy one airline and then hope that company doesn’t have some stock-specific, idiosyncratic challenges. Or you can buy an exchange traded fund (ETF) that holds a diversified basket of airline stocks and avoid any stock-specific risk.

Passing the test

All of which brings me to a new thematic ETF that passes my tests and stands a good chance of bucking the trend for thematic funds to underperform. The Rize Pet Care ETF (LSE: PETZ, LSE: PAWZ) is listed on the London Stock Exchange and trades under the tickers PETZ (priced in US dollars) and PAWZ (priced in sterling). It’s based on a proposition that’s simple to understand – invest in the fast-growing pet products economy. There seems to be an insatiable demand for more expensive pet products and there’s only a limited number of businesses that cater to this very specialised and selective market.

In January 2019, I wrote a Financial Times column on this subject and suggested investors focus on a handful of stocks because there wasn’t a UK-listed ETF. These included Pets at Home, Dechra Pharmaceuticals, Idexx Laboratories and PetMed Express. Over the past three years, all of the highlighted stocks bar one (PetMed) have outperformed their local benchmark (the S&P 500 or the FTSE All Share). That may mean nothing about the future, but my hunch is that the trend is only going to grow as we in the developed world spend more hard-earned cash on our motley mutts and fussy felines and the emerging markets’ middle classes acquire more pets.

Rize Pet Care is weighted 47% towards pet healthcare, 29% pet retail and 17.8% pet food and care manufacturing. Ongoing charges are 0.45%. The are 30 stocks in the fund, with the top five being Pet Center, Patterson, Petco Health, Freshpet and Idexx. I reckon this is one theme that has legs and will run and run, almost as fast as my German Shepherd chasing a stick!

Exchange-traded funds (ETFs) have become increasingly popular. Instead of trying to beat the market like their actively managed counterparts, these track an index, commodity or asset. However there is one corner of this fast-growing market that hasn’t received much attention: short and leveraged (S&L) tracker funds. Short trackers enable you to bet on asset prices falling, while leveraged trackers amplify the ups and downs of the underlying index.

These are listed products that can be included in a self-invested personal pension (Sipp) or general dealing account and, unlike with spreadbetting, the most you can lose is what you initially invested. However, they could prove expensive over time. Any investment in short-term leveraged products could result in a rollercoaster ride that could see all your capital vanish.

Look before you leap

The first wave of S&L products focused on key stockmarket indices and commodities. But there is also a niche of products that track the daily price of a single stock. The three-times long products deliver three-times a stock’s daily upside and the three-times short products triple the daily decline. Normally I’d suggest investors stay away from any leveraged structure based on short-term trading – especially one involving a product that looks at daily returns. But if you think we are only halfway through a new supercycle that will benefit technology giants, leveraged long trackers could produce impressive results over time.

GraniteShares and Leverage Shares are two of the main S&L product providers. GraniteShares has a Rolls-Royce three-times long and three-times short tracker. Rolls-Royce’s share price has been very volatile over the last 12 months. The shares rose by 17% in the year to late November, but their sharp daily ups and downs resulted in a return of -23.5% for the three-times long product. By contrast, Microsoft has seen its share price rise by 59% over the last 12 months; the three-times long tracker is up by 245%. Apple’s share price has gained 41.5%; the three-times long product 127%. Since its inception in July 2020, GraniteShares’ three-times long Tesla Daily has gained 3,087% compared with Tesla’s stock gain of 469.5%.

But it’s worth considering the cost of these products. GraniteShares’ Rolls-Royce three-times long tracker costs 0.0182% per day (6.5% per year). Leverage Shares’ three-times long Apple tracker charges an annual management fee of 0.75%, plus a margin fee: the US Federal Reserve’s overnight interest rate plus 1%.

Betting on baskets

Leverage Shares offers a much broader range of exciting tech names, including Zoom, Twitter, and Shopify. However, GraniteShares offers stock baskets, a small collection of related tech stocks where each component is equally weighted after each quarterly rebalancing.

Their FAANG daily contains Amazon, Apple, Alphabet, Facebook, and Netflix. You can buy a straight one-for-one tracker (FANG) with a total expense ratio of 0.69%, or the three-times long version (3FNG) with a charge of 0.0071% per day (2.59% per year). Over the last six months the one-for-one product is up by 19.9%, while the three-times long version has gained 65%. Granite also offers GAFAM (Alphabet, Amazon, Facebook, Apple and Microsoft) and FATANG (Facebook, Amazon, Tesla, Apple, Netflix and Alphabet).

Leverage Shares provides a simpler suite of stock trackers, which provide one-to-one exposure to big stocks at a fraction of their price. Many US tech stocks are expensive to buy 0on a regular basis, and there are also complicated US tax forms to fill out before trading. These stock trackers allow investors to buy a small fraction of US stocks easily with a UK dealing account. For most readers, a US-enabled share trading account that allows fractional shares will be an easier option, but these trackers could be useful to everyone else.

While money has been flooding into infrastructure and real-estate funds recently (as I noted two weeks ago) another type of listed fund is also now experiencing a fundraising boom: exchange-traded funds (ETFs). They are mostly thematic funds containing a small basket of stocks, in some cases fewer than 50. By contrast, most previous ETFs have been broader index trackers. The new ones are therefore riskier than buying a wide portfolio of companies.

From industrials to bitcoin

The most straightforward new ETF is Global X’s US Infrastructure Development UCITS ETF (LSE: PAVE). It holds 99 companies set to benefit from increasing infrastructure activity in the US, driven by President Biden’s $1.2trn Infrastructure Investment and Jobs Act. Top holdings include Nucor, Eaton Corp, Kansas City Southern, and Vulcan Materials. Over 70% of the stocks in the fund are in the industrials sector, while materials and mining businesses make up the second-largest category of stocks.

Rize’s Digital Payments Economy UCITS ETF (LSE: PMNT) focuses on the rise of fintech-payment platforms. It tracks the Foxberry Euromonitor Digital Payments Economy USD Net Total Return index, which comprises over 60 companies developing novel payment solutions, such as Mastercard, Visa, American Express and Paypal, as well as digital-money players Coinbase Global and Voyager Digital. It’s a fascinating sector, and payments processors are the hot ticket in fintech at present. Note, however, that valuations – even for the blue-chip players – are looking stretched.

HanETF’s latest launch, ETC Group Digital Assets & Blockchain Equity UCITS (LSE: KOIN), tracks an index with around 30 stocks involved in blockchain-based securitisation and payments, digital asset-mining companies, exchanges, non-fungible tokens (NFTs) and stablecoins. Top holdings are likely to be Marathon Digital, which focuses on asset mining (the process whereby digital assets such as bitcoin are minted and released into circulation), Coinbase (a cryptocurrency exchange), Galaxy Digital (a blockchain specialist), and Riot Blockchain.

The top five holdings will probably comprise around 50% of the fund. It is based on the Solactive ETC Group Digital Assets and Blockchain Equity index and each stock is capped at 10% of the index. Other existing ETFs within this niche (Invesco’s Elwood Global Blockchain UCITS ETF, VanEck Vectors’ Digital Assets Equity UCITS ETF, and the Melanion BTC Equities Universe UCITS ETF) all charge over 0.65% in fees, while the KOIN ETF charges 0.6%. It’s cheaper but also more of a pure-play digital assets fund; some of the rival funds hold bigger, less focused technology outfits like Intel or chip giant TSMC.

Amazon’s Alexa-inspired ETF

Most of us have probably dabbled with Amazon or Google smart-home devices, but these are just the tip of the iceberg of home-automation innovation, a fast-growing segment. VanEck Vectors Smart Home Active UCITS ETF (LSE: CAVE) is designed to cash in on this trend.

It differs from the ETFs mentioned so far because it is actively managed. Until now, virtually all ETFs have involved passively tracking an index. An active ETF looks and feels like a cross between an index-tracking fund and an investment trust: there is an “index” comprising a portfolio of 60 companies that generate their revenue or maintain assets in the “smart home ecosystem”, but there is also an active manager (Dutch investment boutique Dasym) that selects and changes the companies in that index on a monthly basis. I expect to see a great many more of these actively managed ETFs in the next few years, blurring the boundary between ETFs and investment trusts.

You don’t have to be a vegan to think that if we are to feed as many as nine billion people with high protein foods in the next few decades, then we might need some alternatives to traditional meat products. There will always be a market for high quality, intelligently-farmed natural meat products, but they are likely to be more expensive. The good news is that new food technologies are emerging and becoming profitable. Not all of the new products are perfect, but they are more “sustainable”.

Two disruptive sectors

Food is just one sector where the next “disruptive” technologies are already building momentum. I suspect another opportunity lies in next-generation educational technology (or “edtech”). Even before the Covid-19 outbreak, many were questioning the value of traditional educational delivery, and while online education hasn’t quite taken off to the extent everyone expected it to, change is afoot, especially in Asia.

These big trends are the focus of two new exchange-traded funds (ETFs) from UK-based issuer Rize. Both Rize Sustainable Future of Food UCITS ETF (LSE: FOOD) and Rize Education Tech and Digital Learning UCITS ETF (LSE: LERN) launched a few weeks ago. To compile the indices, Rize commissioned specialist researchers in each field to build a filtered shortlist of firms that meet various criteria. In the case of food – which is themed around a sustainable, “circular” economy – it’s US-based group Tematica Research. For edtech, it’s Australian firm HolonIQ, which describes itself as “the leading global education market intelligence firm in the world”. The themed indices are then operated by specialist index provider Foxberry.

More than burgers

I suspect FOOD will prove more popular in the short term, not least because its largest holding (though less than 4% of the index) is plant-based burger company Beyond Meat. The ETF’s definition of food disruption is deliberately broad – there are about 160 stocks in the universe, with sub-categories including agriscience, digital and precision farming, organic and plant-based proteins, plus food and ingredient testing. For my money the most interesting prospects lie in aquaculture and precision-based farming. Urban farms are sprouting up everywhere – the fresh salad outputs of these industrial farms are expensive, but the circular technology used to produce them is hugely efficient. The ETF also includes established, highly-profitable businesses in the food flavouring market, many of which are trying to find chemicals to mimic “natural” flavourings. Sustainable packaging is also a big component. Notably, the index is weighted using a sustainability score, rather than market value.

The LERN ETF, focusing on digital and lifelong learning technologies will be a slower burn I suspect. However, it has a cohort of very profitable businesses. The edtech market is now exploding in size and HolonIQ reckons there’s more growth ahead as automation forces huge numbers of people to re-skill. That said, the K12 market – schools to you and me – is still the biggest sub-sector of this market. Related businesses include Chegg, which runs direct-to student online learning support, homework help and tutoring services; 2U, which partners with universities to build, deliver, and support online degree programmes; and, IDP Education, an international education platform and English language test provider. Chinese stocks represent 35% of the index exposure, which speaks volumes as to where the growth potential lies.

Both ETFs have a growth stock, mid-to-smaller cap bias which could make them very volatile. But if you’re looking for a left-field basket of tomorrow’s tech, they could be useful.