How to Lose Money on the World’s Most Popular Investment Theme

There are lots of embarrassing ways to lose money, but it is particularly galling to lose when you correctly identify the theme that will dominate the market and manage to buy into it at a good moment.

Pity the investors in the three artificial-intelligence-themed exchange-traded funds that managed to lose money this year. Every other AI-flavored ETF I can find has trailed both the S&P 500 and MSCI World. That is before the AI theme itself was seriously questioned last week, when investor doubts about the price of leading AI stocks Nvidia and Super Micro Computer became obvious.

The AI fund disaster should be a cautionary tale for buyers of thematic ETFs, which now cover virtually anything you can think of, including Californian carbon permits (down 15% this year), Chinese cloud computing (down 21%) and pet care (up 10%). Put simply: You probably won’t get what you want, you’ll likely buy at the wrong time and it will be hard to hold for the long term.

Ironically enough, Nvidia’s success has made it harder for some of the AI funds to beat the wider market. Part of the point of using a fund is to diversify, so many funds weight their holdings equally or cap the maximum size of any one stock. With Nvidia making up more than 6% of the S&P 500, that led some AI funds to have less exposure to the biggest AI stock than you would get in a broad index fund.

This problem hit the three losers of the year. First Trust’s $457 million AI-and-robotics fund has only 0.8% in Nvidia, a bit over half what it holds in cybersecurity firm BlackBerry .

WisdomTree ’s $213 million AI-and-innovation fund holds the same amount of each stock, giving it only 3% in Nvidia.

BlackRock ’s $610 million iShares Future AI & Tech fund was also equal weighted until three weeks ago, when it altered its purpose from being a robotics-and-AI fund, changed ticker and switched to a market-value-based index that gives it a larger exposure to Nvidia.

The result has been a 20-percentage-point gap between the best and worst AI ETFs this year. There is a more than 60-point gap since the launch of ChatGPT in November 2022 lit a rocket under AI stocks—although the ETFs are at least all up since then.

The market has penalized being equal weighted recently, instead rewarding big holdings in the largest stocks.

Jay Jacobs , U.S. head of thematic and active ETFs at BlackRock, says it is best to be market-value weighted when a theme has winner-takes-all characteristics, which he says generative AI has. When the firm’s AI fund included robotics it was spread across a lot more stocks that didn’t compete with each other, so equal weighted made more sense.

For investors, it isn’t so simple. Global X takes the opposite approach with its two $2 billion-plus AI funds, AIQ and BOTZ. BOTZ only buys stocks that focus on AI and robotics, but takes larger positions. AIQ spreads its bets on AI and tech more widely, and its 3% cap on its biggest holdings each time it rebalances means it has far less in Nvidia than BOTZ, with a cap of 8%. AIQ still managed to beat BOTZ this year, though.

So far, so confusing. The basic lesson: Picking among funds within a theme is hard, and depends on luck as well as close reading of the fund’s documents. A more advanced lesson is that it is hard to pick a theme in the first place, or to stick with it. The three problems:

1. Defining the theme is hard . Nvidia features in the anti-woke YALL ETF, which pitches itself as for “God-fearing, flag-waving conservatives.” The chip maker is also held by vegan, gender-diverse and climate-action ETFs. Its shares are clearly driven by the prospects for AI, but it is still big in computer-game and bitcoin ETFs, where its chips were originally used.

2. Timing the theme is even harder. Get in too early, and there aren’t any companies to buy. Get in when the funds are being launched, and the chances are the theme is already widely known and overpriced, as there are typically large numbers of launches during bubbles and late-stage bull markets.

“They are trendy by design,” says Kenneth Lamont, a senior researcher at Morningstar. “They play to our worst instincts, because we’re narrative-driven creatures.”

A recent example was the race to launch clean-energy and early-stage-tech ETFs during the bubble of late 2020 and early 2021. Performance since then has been miserable as prices corrected, with many of the ETFs halving or worse.

Dire timing is common across themes: According to a paper last year by Prof. Itzhak Ben-David of Ohio State University and three fellow academics, what they call “specialized” ETFs lose 6% a year on average over their first five years due to poor launch timing.

3. Long-term investing is pitched by fund managers as the goal for thematic investing, to hang on until the theme bears fruit. But even investors who really want to commit to a theme for the long run often find it hard, as so many funds are wound up, merged or change strategy when they go out of fashion.

The boom in internet funds of the late 1990s vanished after the dot-com bubble burst, with few surviving to see the internet theme blossom a decade later, while six of the 50 “metaverse” funds launched after Facebook switched to Meta Platforms in 2021 have already shut, according to Lamont.

The oldest thematic fund, the DWS Science and Technology mutual fund, started as the Television Fund in 1948 before adding electronics, and has gone through at least four other names. I only have data back to 1973, but it has lagged far behind the wider market since then, despite golden ages for television, electronics, science and now tech. (Yes, it has a lot of Nvidia.)

So what to do? At a very minimum, don’t buy based on the name of a fund. Look at the holdings, look at the index it follows and how it is structured, and consider whether it does what it says. Then think about just how expensive the idea has already become. Watch for the theme coming into fashion and getting overpriced, as that is a good time to sell (or to launch a fund).

But mostly, look at the fees: They will be many times higher than a broad market index fund, and the dismal history of poor timing suggests that for most people they aren’t worth paying.

Reporting season has once again reminded investors that a strong profit does not guarantee a rising share price, and a large loss does not always trigger a sell-off. What matters most is how each result compares with expectations and, increasingly, what management says about the year ahead. During the August 2026 season, companies offering credible turnarounds or unexpectedly strong guidance were rewarded handsomely, while those flagging weaker margins, slowing demand or greater uncertainty were punished.

The following ranking draws on Morningstar’s review of 164 ASX-listed companies and measures each company’s share-price movement on the day it reported. This captures the market’s immediate response to the earnings announcement, before subsequent economic developments, dividends and company-specific news cloud the picture. Here are the five biggest winners, and the five hardest-hit losers, of the season so far.

The five winners

1. Bapcor (ASX:BAP): +41.0%

Bapcor delivered reporting season’s largest relief rally after presenting early evidence that its troubled automotive-parts business was stabilising. Although underlying revenue fell 1.8% to $1.92 billion and underlying NPAT collapsed 85% to $10.8 million, underlying EBITDA of $152.5 million exceeded guidance.

More importantly, working-capital initiatives released $68.5 million in the second half, lifting cash conversion to 109.4% and reducing net debt by 63% to $135 million. The statutory loss was $431.6 million, largely because of non-cash impairments. Investors focused on improving operational momentum, stronger liquidity and management’s expectation of modest FY27 revenue growth.

2. Zip Co (ASX:ZIP): +18.2%

Zip comfortably surpassed its FY26 targets, sending the buy-now-pay-later provider’s shares sharply higher. Transaction volume rose 23% to $16.7 billion, while cash earnings before tax, depreciation and amortisation jumped 58% to a record $268.9 million. Statutory profit climbed 46% to $116.4 million, and the cash operating margin expanded by 4.2 percentage points to 20%.

The strongest signal was guidance for FY27 cash earnings of $340 million—around 26% growth and above analysts’ forecasts. US transaction volume increased 42.5% and now represents three-quarters of group volume, offsetting weaker customer activity in Australia.

3. CSL (ASX:CSL): +17.3%

CSL’s result was hardly spectacular in isolation, but it cleared a market bar that had fallen dramatically following earlier downgrades and restructuring announcements. Underlying NPATA was US$3.1 billion, down 2% in constant-currency terms, while operating cash flow reached US$3.51 billion.

CSL maintained its full-year dividend at US$2.92 per share and completed a A$1 billion buyback. The real catalyst was FY27 guidance for approximately 5% underlying profit growth, compared with market expectations closer to 2%. After an extended period of earnings disappointments, investors interpreted the outlook as evidence that CSL’s core plasma business was approaching a sustainable recovery.

4. Judo Capital (ASX:JDO): +16.9%

Judo Capital demonstrated strong operating leverage as its specialist business-lending franchise expanded. Full-year profit before tax rose 34% to $168.1 million, while pre-provision profit increased 42%. Gross loans and advances grew 18% to $14.7 billion, reaching the top of the bank’s guidance range and comfortably exceeding broader system growth.

Deposits increased 24% to $12.2 billion, return on equity improved by 1.1 percentage points to 6.4%, and earnings per share rose 29% to 9.9 cents. Reaffirmation of the FY27 outlook gave investors confidence that loan growth could continue without sacrificing margins or credit quality.

5. Super Retail Group (ASX:SUL): +15.8%

The owner of Supercheap Auto, rebel, BCF and Macpac reported record sales of $4.2 billion, up 3.2%, despite cautious discretionary spending. Profitability went backwards: normalised profit before tax fell 7% to $306 million and normalised NPAT declined 2.8% to $226 million as transformation spending weighed on margins. Nevertheless, the result exceeded subdued expectations, online sales grew 5.3% and membership across the group’s loyalty programs reached 13.1 million. Investors were also encouraged by positive early FY27 trading, stable gross margins and continued market-share gains. A fully franked 33-cent final dividend added to the appeal.

The five losers

1. Hansen Technologies (ASX:HSN): –21.2%

Hansen’s historic result met expectations, but investors recoiled from its outlook. The utility and communications software provider achieved an underlying EBITDA margin of 31%, exceeding its 30% target, while generating strong cash flow. However, management designated FY27 an “investment and transition year”, signalling a roughly five-percentage-point margin contraction as spending on products, sales capabilities and organisational changes increased.

Revenue had already been broadly flat, leaving investors concerned that the investment program would depress earnings before new growth appeared. Leadership changes, including the chief executive’s departure, added uncertainty. Management expects revenue growth and margins above 30% to return in FY28, but the market was unwilling to wait.

2. Life360 (ASX:360): –19.4%

Life360’s headline growth was impressive: quarterly revenue rose 38% to US$159 million, subscription revenue increased 31%, and adjusted EBITDA climbed 53% to US$31.1 million. Monthly active users reached 102.4 million and paying circles grew 27% to 3.2 million. The sell-off reflected expectations rather than a collapsing business.

Net income fell 18%, the net margin contracted from 6% to 3%, hardware shipments dropped 18%, and full-year EBITDA guidance was merely maintained. After a strong valuation run, investors wanted a larger upgrade and clearer evidence that heavy investment in advertising, international expansion and artificial intelligence would generate additional earnings.

3. PEXA Group (ASX:PXA): –17.0%

PEXA reported a 7% increase in continuing-operations revenue and 12% EBITDA growth to $152 million, accompanied by a two-percentage-point margin expansion. Free cash flow increased 39%, suggesting the core Australian electronic-conveyancing platform remained highly profitable. Investors instead concentrated on management’s warning that property-transfer volumes could decline, alongside regulatory uncertainty surrounding the fees PEXA can charge.

The company is also continuing to invest heavily in its loss-making international expansion. Morningstar considered the market reaction excessive, arguing that structural transfer-volume assumptions had not materially changed, but the combination of softer near-term activity and regulatory risk overwhelmed the respectable headline numbers.

4. SEEK (ASX:SEK): –14.3%

SEEK produced solid FY26 figures, including 10% revenue growth to $1.20 billion, a 15% rise in EBITDA and 28% growth in adjusted earnings per share. It also lifted its fully franked annual dividend by 13% to a record 52 cents. Those achievements were overshadowed by falling paid job-ad volumes and cautious FY27 assumptions.

The statutory accounts included a $201 million loss from the SEEK Growth Fund and $377 million of significant items, making the headline result considerably less attractive. Investors were particularly concerned that economic weakness could limit volumes while the company continued investing in platform integration and artificial-intelligence products.

5. JB Hi-Fi (ASX:JBH): –12.3%

JB Hi-Fi’s full-year result was broadly respectable, with group sales rising 5% to $11.1 billion and underlying earnings per share increasing 6% to $4.48. The damage came from its current-trading update. Australian sales were almost flat during the June quarter and deteriorated further in July, while earnings in the core Australian electronics business fell 3.6%.

Housing-related categories were particularly weak as higher living costs and interest rates constrained household budgets. With JB Hi-Fi entering the season on a demanding valuation, an in-line historic result was not sufficient: the loss of sales momentum prompted investors to rapidly reduce their expectations for FY27.

Overall, the season showed that share prices react less to whether profits rose or fell than to the gap between results and expectations. Bapcor was rewarded for being less troubled than feared, while several fundamentally profitable companies were punished because their outlooks failed to justify elevated valuations.