The Next Big Theme: January 2020

Jan 10, 2020

Electric Vehicles                                                         

CO2 emissions standards could rev EVs

Stricter carbon emission standards in Europe could help electric vehicles take a bigger share of the total car market. The CO2 emission target for new cars is now 95g CO2/Km, down from the average level of 120.4 g CO2/Km in 2018.1 At least 95% of new cars need to comply with this standard. If car manufacturers do not comply, they must pay a fine of €95 for each gram that exceeds the target, multiplied by the total number of cars they sell. For example, if a car manufacturer registers 1 million new vehicles that exceed the emission target by 5g CO2/Km, the fine would be a lofty €475 million. The EU began setting mandatory emission reduction targets for new cars in 2009.


Making your smart home smarter

Smart home product developers, including Amazon, Apple, and Google, among others, announced plans to develop and encourage a royalty-free connectivity standard called Project Connected Home over IP.2 The initiative seeks to enable compatibility between smart devices while keeping user data secure—a feature that consumers increasingly demand. For consumers, this initiative means communication between smart assistants, mobile apps and cloud services that may not be produced or provided by the same companies. For manufacturers, this means more seamless and less-nuanced production. Those involved hope additional manufacturers, silicon providers, and smart join the effort for more widespread adoption.


Another state gives cannabis the A-ok

On January 1, 2020, Illinois became the 11th state to legalize recreational cannabis. On the first day of legalization, the state saw nearly $3.2M of product sales across 77k transactions.3 Societal acceptance of cannabis continues to increase, and with that comes movements to remove old stigmas associated with the drug. One day before legal sales of recreational cannabis began in Illinois, Governor J.B. Pritzker announced that the state cleared the records of 11,000 people previously convicted of cannabis-related crimes.4 Support for recreational cannabis legalization is high, and more states are set to vote on legalization in 2020, including Arizona, Florida, New Jersey, New Mexico, New York and Vermont. Those states, with an aggregated population of approximately 47 million people, could represent a huge new untapped market.


No more games: eSports hit the public markets

On December 9, 2019, Astralis IPO’d on Nasdaq’s small-company Copenhagen exchange, becoming the world’s first eSports team to IPO. Denmark-based Astralis is the number one ranked team in online, first-person shooter game Counterstrike: Global Offensive. It boasts sponsorships with major companies, such as carmaker Audi and computer peripherals manufacturer Logitech. In recent months, Astralis reclassified as a media company and expanded into games, including League of Legends and FIFA.5 Astralis CEO Nikolaj Nyholm noted that while venture capital funding can help teams secure spots in eSports leagues, public market capital raising provides greater flexibility and allows founders to hold onto their shares.6

Artificial Intelligence

Volcanoes bursting with data

Approximately 800 million people live within the blast zones of the world’s 1,500 potentially active volcanoes. Many of these volcanoes are not monitored consistently.7 The lack of surveillance and data has researchers turning to artificial intelligence (AI) to help. Researchers at the University of Leeds found that they could use satellites to produce measurements of ground deformation, and then leverage AI to identify and signal volcanic unrest. AI to predict geological events could be a game changer for those in harm’s way, and lead to new economies based on preparedness and potential fallout.


Attacking anxiety with science

A recent Brigham and Women’s Hospital study identified activity in more than 209 genes across three anxiety levels.8 Researchers put genetically-normal mice through several behavioral tests and identified those that performed least consistently. Researchers then used computational modeling and RNA sequencing to categorize the mice based on their genetics and behaviors. Among the genes found to be anxiety-related were ones associated with learning and memory, hormonal expression, and reproduction. Next steps include homing in on which of the identified genes are addressable via pharmaceuticals.9

U.S. Infrastructure

Higher ground needed in the Keys

Residents of the Florida Keys may face some difficult choices in coming years due to climate change, including whether to relocate. Officials released the results of multi-year study that estimates how much additional elevation roads will need to stay above water in the coming years. The study found that the capital needed is beyond what taxpayers could pay and that many roads will likely be abandoned. In one example, a three-mile strip of road would need an additional 2.2 feet of elevation to stay above water until 2045, at a cost of $128 million.10 Officials mentioned ferries and water taxis as new means of transport for Keys residents, though finding new sources of funding or cheaper ways to raise the roads remain possibilities.11


The following charts examine returns and sales growth expectations by theme, based on their corresponding ETFs.


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Investing involves risk, including the possible loss of principal. There is no guarantee the strategies discussed will be successful. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments may be subject to higher volatility. There are additional risks associated with investing in lithium and the lithium mining industry. The investable universe for thematic ETFs may be limited. The funds are non-diversified.

Video Game and Esports and Cybersecurity Companies are subject to risks associated with additional regulatory oversight with regard to privacy/cybersecurity concerns, shifting consumer preferences, and potential licensing challenges. Declining or fluctuating subscription renewal rates for products/services or the loss or impairment of intellectual property rights could adversely affect profits. Thematic companies may have limited product lines, markets, financial resources or personnel. They typically engage in significant amounts of spending on research and development, capital expenditures and mergers and acquisitions.

Investments in infrastructure-related companies have greater exposure to the potential adverse economic, regulatory, political and other changes affecting such entities. Healthcare, Pharmaceutical, Biotechnology and Medical Device companies can be affected by government regulations, expiring patents, rapid product obsolescence, and intense industry competition. The risks related to investing in cloud computing companies include disruption in service caused by hardware or software failure, interruptions or delays in service by third-party data center hosting facilities and maintenance providers, security breaches involving certain private, sensitive, proprietary and confidential information managed and transmitted by cloud computing companies, and privacy concerns and laws, evolving Internet regulation and other foreign or domestic regulations that may limit or otherwise affect the operations of such companies.

POTX’s investments are concentrated in the cannabis industry, and the Fund may be susceptible to loss due to adverse occurrences affecting this industry. The cannabis industry is a very young, fast evolving industry with increased exposure to the risks associated with changes in applicable laws (including increased regulation, other rule changes, and related federal and state enforcement activities), as well as market developments, which may cause businesses to contract or close suddenly and negatively impact the value of securities held by the Fund.  Cannabis Companies are subject to various laws and regulations that may differ at the state/local, federal and international level. These laws and regulations may significantly affect a Cannabis Company’s ability to secure financing and traditional banking services, impact the market for cannabis business sales and services, and set limitations on cannabis use, production, transportation, export and storage. The possession, use and importation of marijuana remains illegal under U.S. federal law. Federal law criminalizing the use of marijuana remains enforceable notwithstanding state laws that legalize its use for medicinal and recreational purposes. This conflict creates volatility and risk for all Cannabis Companies, and any stepped-up enforcement of marijuana laws by the federal government could adversely affect the value of the Fund’s investments. Given the uncertain nature of the regulation of the cannabis industry in the United States, the Fund’s investment in certain entities could, under unique circumstances, raise issues under one or more of those laws, and any investigation or prosecution related to those investments could result in expense and losses to the Fund.

Information Technology companies can be affected by rapid product obsolescence, and intense industry competition. Risks include disruption in service caused by hardware or software failure; interruptions or delays in service by third-parties; security breaches involving certain private, sensitive, proprietary and confidential information managed and transmitted; and privacy concerns and laws, evolving Internet regulation and other foreign or domestic regulations that may limit or otherwise affect the operations. Healthcare, Pharmaceutical, Biotechnology and Medical Device companies can be affected by government regulations, expiring patents, rapid product obsolescence, and intense industry competition.

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