The Story Behind the Market’s Hottest Funds

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If you think you’ve spotted a trend that other investors haven’t fully appreciated yet, look to see if there's an ETF that will allow you to bet on it. If there is, it could be a sign you're late to the game, says jasonzweigwsj.

A story stock is driven not by earnings or assets but by a simple, alluring narrative: a dynamic new boss, dazzling technology or customers going ga-ga for its products. A story ETF is an exchange-traded fund that invests not in an entire market or single sector but rather in a concept or trend.

You’re probably better off buying a story ETF than a story stock; at least the fund is somewhat diversified. But story ETFs carry their own risks. Often called thematic ETFs, these funds cut across industries, trying to capitalize on ideas like alternative energy, cloud computing or 3-D printing. Others buy stocks that could benefit as more people work from home, demand gender or racial diversity, or lavish money on their pets.

Assets in these funds have grown at an average of 45% annually over the past three years, says William Baun of Fuse Research Network in Needham, Mass.

 

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