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Illustration: Sarah Grillo/Axios

Happiness. Weed. Robots. Water. Whatever the theme, there's probably an ETF promoting a basket of stocks related to it.

Why it matters: Thematic ETFs are an investment mania side effect. There's newfound retail investor interest in narrow exposure to hot corners of the stock market. More are launching to meet the moment.

By the numbers: In the past quarter alone, inflows into thematic ETFs hovered close to all of last year's, per ETF data provider TrackerInsight.

  • The backdrop: More ETFs debuted in the U.S. last year than at any point in the past decade, according to Morningstar Direct data.

Catch up quick: Thematic ETFs have been around for years. Issuers are betting new pandemic-era traders want niche exposure to "crypto innovators," companies "highly supportive of Democratic candidates" (DEMZ) or professional sports.

  • "People are more risk tolerant in a low interest rate environment, they're willing to speculate," says Todd Rosenbluth, head of ETF and mutual fund research at CFRA.
  • There's the allure of investors whose names have become more popular on social media, like Cathie Wood — whose Ark Innovation Fund is a poster child for the thematic phenomenon. (It's also one of the biggest by assets.)
  • Issuers "can get into the game, but it's really hard to take market share from iShares or Vanguard or Invesco because they have everything covered," Drew Voros, editor-in-chief of ETF.com, tells Axios.

The big picture: Thematic funds "get a good amount of the new money coming in," but they're a really small slice of the ETF market, says Rosenbluth.

  • Thematic funds' assets under management have more than tripled, to roughly $133 billion, in the past year. That's about 2% of overall ETF assets.

What they're saying: The labels "may sound good, but you have to look under the hood to make sure it's not a marketing technique," and stuffed with stocks that run counter to its advertised mission, says Voros.

  • They also tend to charge a premium to what's available for broad market exposure. But as more "themes" get saturated with ETFs — there are seven for cyber security alone — the costs could come down.
  • Some of the funds can build up large holdings in companies that are barely traded, the FT reported earlier this year.

The intrigue: Thematic funds shed about $1.6 billion in assets in May, Bloomberg reports.

  • Some returns are down, too. Wood's flagship ETF declined more than 30% from its peak, in a swift reversal.
  • Returns for cloud computing and clean energy ETFs have also dropped after a stellar 2020, as CNBC notes.

What to watch: The one investment mania that's ETF-less? Bitcoin.

Driving the news: A slew of financial big wigs have applications in for bitcoin ETFs. U.S. regulators recently punted a decision on whether to allow them to later this summer.

  • The SEC warned Tuesday about the risk of mutual funds with exposure to the bitcoin futures market.
  • However, North America's first bitcoin ETF was approved in Canada earlier this year.

The bottom line: "If there's a theme that can be put into an ETF wrapper, it either already exists in an ETF wrapper — or it's under consideration," says Rosenbluth.

Go deeper

Oath Keepers leader denied bail on Capitol riot sedition charge

Oath Keepers co-founder Elmer Stewart Rhodes. Photo: Susan Walsh/AP

A federal judge ordered Oath Keepers leader Stewart Rhodes to remain jailed Wednesday until trial on charges stemming from the Capitol riot.

U.S. Magistrate Judge Kimberly Priest Johnson e in the t figure charged in the Jan. 6, 2021, insurrection had access to weapons and his alleged "continued advocacy for violence against the federal government" gave credence to prosecutors' view that, if released, Rhodes could endanger others.

Who in Congress is talking about Ukraine the most

Data: Quorum; Chart: Will Chase/Axios

Mentions of Ukraine or Ukrainian President Volodymyr Zelensky in congressional statements and social media posts have been on the rise — with nearly 1,000 already this month, according to data from Quorum.

Why it matters: The growing threat of a Russian invasion has been mirrored by a growth in Ukraine-related chatter.

GOP to use Supreme Court fight to target vulnerable Dems

Illustration: Rebecca Zisser/Axios

Conservatives know they're unlikely to stop President Biden from filling a Supreme Court vacancy, but they plan to target Senate Democrats who face competitive re-election fights and are all but certain to vote for the successor to Justice Stephen Breyer.

Between the lines: The general strategy will be to tie those Democrats to positions seen as political liabilities in states like Arizona, Georgia and New Hampshire, where incumbents are seeking re-election this year, an operative briefed on early strategy talks told Axios.