The Great ETF Mirage: New Study by DayTrading.com Shows Thematic ETF Risks
London, United Kingdom, December 12th, 2025, FinanceWire
The Great ETF Mirage, a study conducted by DayTrading.com, a website that provides market analysis and informational tools to individual investors, compared ARK Innovation (ARKK), Procure Space (UFO), iShares Global Clean Energy (ICLN), iShares MSCI KLD 400 Social (DSI), and Global X Robotics & AI (BOTZ) against the SPDR S&P 500 ETF Trust (SPY) from January 2019 to December 2023. This period covers the 2020 surge, 2021 mania, and the reset that followed – showing a full hype-to-reset market cycle.
This new five-year analysis of widely followed exchange-traded funds (ETFs), tracking popular themes like space and artificial intelligence, shows investors who chased ‘the next big thing’ were rewarded with materially lower returns and greater drawdowns than those who simply held the wider U.S. stock market.
Common advice suggests ignoring market noise and staying invested in a broad index fund, and this analysis helps illustrate why. It may not generate the same excitement as trend-driven themes, but the data in this study shows the potential effectiveness of a simple, diversified approach.
The Returns Gap
Over the backtest period, a $10,000 investment in SPY grew to $18,000 (+80.00%, 12.50% CAGR). Yet the same $10,000, when split between the five topical ETFs, grew to $13,200 (+32.00%, 5.70% CAGR).
That difference put the equal-weight themed basket $4,800 behind SPY, so investors got around 27% less than they may have done by owning the broader market.
“The numbers are pretty blunt,” said Paul Holmes, the study’s lead author. “Across this cycle, the wider market did the job quietly while the ‘hot’ themes required perfect timing, something most retail investors don’t, and won’t, get right.”
More Risk Did Not = More Reward
The report found that themed funds tend to come with more risk than the SPY. In fact, the themed basket’s volatility was categorized as High, as opposed to Low for SPY, while the maximum drawdown hit -60% for the basket compared to -34% for SPY.
Looking at the results for individual funds highlights the problem:
- ARKK: -70% max drawdown, $10K → $13,500, 6.2% CAGR
- UFO: -55% max drawdown, $10K → $12,500, 4.5% CAGR
- ICLN: -50% max drawdown, $10K → $11,500, 2.8% CAGR
- DSI: -35% max drawdown, $10K → $15,500, 9.2% CAGR
- BOTZ: -45% max drawdown, $10K → $13,000, 5.4% CAGR
“Even the better-behaved theme in our group, such as DSI, still couldn’t keep up with a plain allocation in the S&P 500,” Holmes added. “Now the lesson isn’t that innovation or clean energy don’t matter. It’s more that packaging big ideas into sentiment-driven baskets with a tight focus can be a suboptimal way to shoot for compounding wealth.”
Why The Gap Emerged
The report points to three key factors that likely contribute to underperformance:
- Higher fees compared to broader market funds, which can ultimately erode returns over the long run.
- Concentrated portfolios that amplified drawdowns when sentiment took a turn for the worse.
- Late-cycle inflows, as retail demand often rises after major rallies have already occurred following institutional investment.
Lessons for Individual Investors
The report concludes with tips for individual investors:
- Based on the study’s backtest data, broad exposure can beat the story of the moment in the long-term. Good marketing doesn’t mean more returns, as the underlying business isn’t necessarily more profitable.
- Concentration can be a force for both good and bad. Chase themes and you should be prepared for outsized gains, but also larger drawdowns.
- Keep it simple stupid (KISS). A low-cost index fund could be the ‘slow and steady wins the race’ mentality for many everyday investors.
Methodology Notes
The analysis used a five-year window, covering January 2019–December 2023. The figures come from publicly accessible ETF performance ranges from multiple sources, including Yahoo Finance, Morningstar and fund factsheets.
Metrics like CAGR, drawdown and $10K growth were calculated internally using consistent compounding assumptions to provide a clean comparison across different funds.
Results are presented for educational purposes and are not audited total-return data.
Full report available at: https://www.daytrading.com/thematic-funds-vs-sp-500
About DayTrading.com
DayTrading.com is a platform that provides information and market analysis for individual investors. It’s been used by millions of traders worldwide.
Contact
Media LeadJames Barra
DayTrading.com
james.barra@daytrading.com
Latest directors dealings
- 12 minutes ago GSK
- 13 minutes ago 3i Group
- 1 hour ago M&G
- 1 hour ago AJ Bell
- 1 hour ago Pembroke Vct B