Ask the Strategist: Inside Thematic ETFs with Rahul Bhushan

In this debut of "Ask the Strategist," we spoke with Rahul Bhushan, Managing Director & Global Head of Index at ARK Europe, about thematic ETF expertise, ensuring purity, ARK’s unique strategies, sustainable investing, active management, emerging themes under Trump 2.0, and why Nvidia isn’t a top holding in their AI & Robotics ETF.

Here are his insights...

Why is it critical for an ETF issuer to have domain expertise in the themes they invest in?

Domain expertise is critical because it enables us to deeply understand the dynamics, trends, and challenges within a thematic area — something that’s typically unusual in the ETF space. Many issuers simply license off-the-shelf indices built by third parties, but because we design and build everything in-house, we need to have the expertise internally. This approach underpins the quality of both our systematic (index-based) and actively managed strategies. It ensures we can select high-quality companies, avoid common pitfalls, and credibly articulate the investment case to investors. By combining this expertise with a hands-on approach, we’re able to deliver thematic ETFs that go beyond surface-level exposure and truly capture the spirit and potential of each theme.

How can investors ensure a thematic ETF provides true exposure to the theme it claims to represent? Is providing true exposure sufficient?

Investors should look for ETFs that avoid unrelated names and maintain thematic purity by including companies directly aligned with the theme’s core value proposition. However, true exposure goes beyond purity — it requires a rigorous selection process to identify the highest-quality companies within the theme.

These are the companies with strong competitive moats, clear alignment with the theme’s long-term trajectory, and significant growth potential. Without this rigorous approach, an ETF risks diluting its impact and missing the most compelling opportunities a theme can offer. That’s why we ensure our ETFs are designed to capture both the spirit and the upside of each theme.

How does genuine sustainable thematic (impact) investing differ from many of the sustainability funds currently on the market?

Many so-called sustainability funds, such as ESG-screened benchmark strategies, are simply modified versions of traditional indices with minimal real-world impact. By contrast, our approach to sustainable thematic investing focuses on tangible megatrends with transformative potential, such as the EV revolution, battery storage, heat pumps, and energy efficiency.

These investments balance economic opportunity with measurable environmental and social impact. Unlike screen-based strategies, we rigorously select companies that are leaders within these themes, ensuring they have strong competitive moats and are making meaningful contributions to sustainability.

How can systematic strategies in an ETF wrapper have an advantage in helping clients achieve their portfolio objectives?

Our systematic strategies in an ETF wrapper offer precise, diversified exposure to specific themes, helping investors achieve their objectives with innovative, targeted solutions. By leveraging rules-based methodologies, we ensure consistency in portfolio construction while minimizing human bias.

Combined with the benefits of the ETF structure (cost efficiency, liquidity, and transparency) our systematic strategies provide an accessible and effective way for investors to incorporate thematic exposures into their broader portfolios.

How can investors identify if an ETF is truly active, and what are the key benefits of active strategies in an ETF wrapper?

A truly active ETF is defined by high active share, low overlap with benchmarks, and differentiated exposures. Our active ETFs offer unique opportunities by focusing on under-researched and misunderstood areas, such as disruptive innovation. Untethered from benchmarks, we can concentrate solely on the companies with the highest upside potential.

This approach enables us to address inefficiencies in traditional indices, where critical opportunities (especially in technology and innovation) are often overlooked. And with the ETF wrapper, investors benefit from liquidity, tax efficiency, and transparency, maximizing the advantages of active management in a modern, flexible format.

What themes should investors watch under Trump 2.0?

Under a second Trump administration, several transformative themes are likely to emerge, reshaping markets and economic dynamics:

• Deregulation and Reindustrialization: Expect policies aimed at reducing regulatory burdens, particularly for small- to mid-sized businesses, fostering entrepreneurship, and reinvigorating manufacturing and industrial sectors. This could drive broader equity market participation beyond megacaps.
• Tax Reform and Economic Stimulus: Continuation or expansion of tax cuts could enhance consumer and corporate spending, stimulating growth and potentially mitigating Federal deficit concerns.
• Energy Policy: Support for traditional energy sources like oil and gas might combine with investments in nuclear energy and carbon capture to secure U.S. energy independence.
• Defense and Space: Increased defense spending, including strategic investments in aerospace and space technologies, could catalyze innovation in these sectors.
• Government Efficiency: Initiatives such as the Department of Government Efficiency (DOGE) could drive fiscal discipline, encouraging productivity gains in both private and public sectors.
• Technology and Productivity: The convergence of technologies like AI, robotics, energy storage, and blockchain is poised to drive unprecedented productivity gains, transforming industries and supporting sustained growth.

While these themes align with some of ARK’s focus areas, they extend beyond our offerings, highlighting opportunities for broader market participation. The overall narrative suggests a market environment characterized by innovation, deregulation, and economic dynamism, potentially mirroring the growth conditions of the Reagan era.

Nvidia frequently ranks among the top 5 or top 10 holdings in many AI-focused ETFs. Why doesn’t it make the top 20 holdings in your AI & Robotics ETF?

Our ARK Artificial Intelligence & Robotics UCITS ETF (AAKI) is designed to actively manage around opportunities across the AI and robotics value chain. Instead of focusing on one segment, such as semiconductors or AI hardware, we seek out areas where our research indicates the greatest asymmetry in potential returns.

While Nvidia is a critical player in AI hardware, our approach emphasizes the software layer and embodied AI applications—areas where we believe significant asymmetry is more likely to be found. For example:

• Software Layer: We focus on companies driving AI innovation through advanced software platforms, which we see as a critical enabler of value creation across industries.
• Embodied AI Applications: This includes robotics in its many forms, from autonomous vehicles, drones, and rockets to medical, industrial, and humanoid robots. These are the practical applications of AI in the physical world, and we prioritize companies that are poised to take disproportionate market share and disrupt their respective industries.

Ultimately, it’s not about including or excluding specific names like Nvidia. Our strategy is to identify where the greatest opportunities lie, based on rigorous research, and to invest in companies that we believe have the potential to be future disruptors. This dynamic approach ensures our portfolio remains forward-looking and focused on areas of untapped potential.

I see you recently launched a new Substack newsletter called On The Pulse. What is it about and who should subscribe to it?

On The Pulse is my Substack newsletter, where I share my musings on macro, technology, and sustainability. Each week, I dive into recent developments, weaving together big-picture insights with a touch of humor and a personal perspective.

The newsletter includes:

• Weekly Macro Letters: Thoughtful explorations of themes like the AI energy transition, the evolving digital economy, and the broader macroeconomic forces shaping our world.
• Essays: In-depth takes on specific topics, designed to provoke thought, spark curiosity, and occasionally amuse.

It’s written for anyone who enjoys a mix of rigorous analysis, long-term thinking, and an occasional chuckle about the quirks of innovation and markets. If you’re interested in connecting the dots across macro, technology, and sustainability—with a slightly unconventional lens—On The Pulse is for you.

About Rahul Bhushan

Rahul joined ARK in September 2023 following ARK’s acquisition of Rize ETF (now ARK Invest Europe), of which he was Co-Founder and Director. Rahul is a Managing Director and Global Head of Index in Europe as well as Director on the board of the ARK Invest UCITS ICAV.

An expert strategist in thematic and sustainable investments, Rahul is responsible for spearheading global systematic (self-indexed) strategies, overseeing European UCITS product strategy and implementation, and leading investment research alongside managing our product specialist team. His research focus includes the Energy Transition, Food Sustainability, and the Digital Economy.

Prior to ARK’s acquisition, Rahul served as Co-Founder and Director of Rize ETF, Europe’s first specialist sustainable thematic ETF issuer launched in 2020. Prior to Rize ETF, Rahul served as Co-Head of ETF Investment Strategies at Legal & General Investment Management (LGIM), a platform LGIM acquired from ETF Securities in 2018. Working in the ETF industry since 2010, Rahul has developed a profound expertise in systematic investment strategies and product development, covering the full spectrum from ideation to strategy formulation.

Rahul earned his Master’s Degree in Finance from IE Business School in Madrid, Spain. He is fluent in Swedish, French, and Hindi, and possesses conversational proficiency in Spanish.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.