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.

China’s economy is unusual. Whereas consumers contribute 50% to 75% of gross domestic product in other major economies, in China they account for 40%. Investment, such as in property, infrastructure and factories, and exports provide most of the rest.

Lately, that low consumption has become a headwind to China’s growth because property investment, once a major component of demand, has collapsed.

This isn’t just a problem for China; it’s a problem for the whole world. What Chinese companies can’t sell to Chinese consumers, they export. The result: an annual trade surplus in goods now of almost $900 billion, or 0.8% of global gross domestic product. That surplus effectively requires other countries to run trade deficits.

China’s surplus, long a sore spot in the U.S., increasingly is one elsewhere, too. While China’s 12-month trade balance with the U.S. has risen by $49 billion since 2019, it’s up $72 billion with the European Union, $74 billion with Japan and Asia’s newly industrialised economies, and about $240 billion with the rest of the world, according to data compiled by Brad Setser of the Council on Foreign Relations.

Logan Wright , head of China research at Rhodium Group, a U.S. research firm, said China accounts for just 13% of the world’s consumption but 28% of its investment. That investment only makes sense if China takes market share away from other countries, rendering their own manufacturing investment unviable, he said.

“China’s growth model is dependent at this point on a more confrontational approach with the rest of the world,” he said.

While many developing countries relied on investment and exports to fuel early growth, China is an outlier for how low its consumption is, and its sheer size. In a report, Rhodium estimates that if China’s consumption share equaled that of the European Union or Japan, its annual household spending would be $9 trillion instead of $6.7 trillion. That $2.3 trillion difference—roughly the GDP of Italy—is equal to a 2% hole in global demand.

The sources of this underconsumption are deeply embedded in both China’s fiscal systems and its policy choices.

Chinese incomes are highly unequal, and because the rich spend less of their income than the poor, this automatically depresses consumption. Rhodium cites data that says the top 10% of households had 69% of total savings, while a third had negative saving rates.

Other countries address such disparities by taxing the rich more heavily and boosting the spending power of lower and middle classes through cash transfers, and public health and education. China does much less of this. Just 8% of its tax revenue comes from personal income taxes, compared with 38% from value-added taxes, similar to sales taxes, which fall much more heavily on lower-income families, Rhodium estimates.

China also spends less on health and education than major market economies, forcing poor and middle-income families to spend more of their disposable income on both.

Meanwhile, suppressed wages and interest rates depress household income and spending while boosting the profits of state-owned enterprises. The limited taxing authority of local governments forces them to raise revenue by selling property for manufacturing and infrastructure, which further inflates investment.

A decade ago top Chinese policymakers shared Western economists’ perspective that, at the macro level, China needed to rebalance away from investment to consumption. In 2013, the ruling Communist Party said growth would henceforth rely on market forces and consumers.

President Xi Jinping ended up going in the opposite direction; consumption stayed weak while state control over the economy grew. He has replaced reformers with loyalists more preoccupied with sector-specific targets than overall growth.

The bedrock principle behind trade is comparative advantage: countries specialise in what they do best and then export it in exchange for imports. Xi rejects this principle. In pursuit of “independence and self-reliance,” he wants China to make as much and import as little as possible.

Officials in China boast that it is the “only country to produce in every single one of the United Nations’ industrial product categories,” notes Andrew Batson of Gavekal Dragonomics.

Even as China targets advanced products such as electric vehicles and semiconductors, it refuses to surrender market share in lower-value products: “Establish the new before breaking the old,” Xi has instructed his bureaucrats , my colleagues have reported.

As a result, Rhodium argues , “China provides fewer opportunities as an export market for emerging countries while competing head-on with them in the low-tech and mid-tech space.”

Countries that once saw China as a customer now see a competitor. “Many Chinese businesses are manufacturing intermediate goods, which we mainly export,” Rhee Chang-yong , the governor of the Bank of Korea, said last year. “The decadelong support from the Chinese economic boom has disappeared.”

Mexican Finance Minister Rogelio Ramírez de la O complained last month , “China sells to us but doesn’t buy from us and that’s not reciprocal trade.”

Ironically, foreign officials have tended to see the U.S. as the biggest threat to the world trade system, ever since President Donald Trump in 2018 imposed steep tariffs on China and narrower tariffs on other trading partners. He has promised to expand those tariffs if elected this fall.

And yet Trump’s tariffs should be seen as a reaction to China’s beggar-thy-neighbour economic model, one that has proved impervious to existing trade rules.

Still, no single country can fix the problem. Like a dike deflecting floodwaters, U.S. tariffs have diverted Chinese exports to other markets.

Those other countries are now taking action. Mexico, Chile, Indonesia and Turkey have all announced or said they are considering tariffs on China this year. This week Canada announced steep new tariffs on Chinese electric vehicles, steel and aluminum, aligning with those already announced by the U.S.

Yet the world thus far lacks a unified solution to Chinese underconsumption, because China refuses to accept that it’s a problem.

Xi has rejected fiscal support for households as “welfarism” that breeds laziness. In April, Treasury Secretary Janet Yellen complained that China’s “weak household consumption and business overinvestment” were threatening jobs in the U.S. The state news agency Xinhua called it a pretext for protectionism. Earlier this month the International Monetary Fund advised Beijing to spend 5.5% of GDP over four years buying up uncompleted homes. Beijing politely declined.

With China dug in, more friction is sure to follow, and an already fragile world trading system will be stressed to its breaking point.

Bosses are quietly trying to reset worker pay levels, saying the era of overpaying for talent is over.

Pay for many white-collar recruits shrank last year , and now wages for new hires in construction, manufacturing, food and other blue-collar sectors appear to be ebbing too, according to an analysis of millions of jobs posted on ZipRecruiter.com .

Job seekers report seeing roles that once offered salaries between $175,000 and $200,000 a year ago now being advertised for tens of thousands of dollars less, a change that has had them rethinking their pay expectations. Companies are also moving job openings to lower-cost cities or offering them as lower-paying contractor roles, recruiters and corporate advisers say.

The push to reset employee salaries reflects a power shift in the cooling hiring market. Employers have more choice of who they can hire, and at what pay level, and are questioning whether they really need star hires when a workhorse will do . Even hourly jobs that were until recently the toughest for employers to fill are being advertised at lower pay than a year ago, as are some professional roles, according to business leaders and recruiters. undefined undefined “A lot of companies are thinking they can get away with paying a cheaper salary because they know us job seekers are desperate,” said Eric Joondeph, 31 years old, who has been looking for a senior customer-experience role for nine months. He has lowered his pay expectations by at least $20,000 a year since he started looking.

Among listings for more than 20,000 different job titles on ZipRecruiter.com this year, sectors including retail, agriculture, transportation and warehousing, manufacturing, and food all registered drops in average posted pay. The biggest was retail, where average wages advertised for new hires is down 55.9%; agriculture is down 24.5% and manufacturing, down 17.3%.

Tom Locke, a McDonald’s franchisee who owns 56 restaurants in Ohio, Pennsylvania and West Virginia, starts hourly workers at $13 an hour, but the signing bonuses and other hiring incentives he offered during the pandemic are gone. He said he is constantly asking his managers if they can reduce hourly wages to $12 an hour.

Labor expenses at Locke’s McDonald’s locations now exceed his food costs—something he said hasn’t happened in his 24 years with the company.

“I want everybody to do well in America, but there’s cost pressures,” he said. “It’s just a constant battle.”

‘Geographic arbitrage is real’

Pay resets continue to ripple through the white-collar world too. Joondeph has been looking for a senior role in customer experience since he was laid off from a customer-experience associate role.

“I’ve seen salaries slowly dropping little by little for roles I’ve been targeting,” he said.

Based in Boise, Idaho, Joondeph said he is struck by the number of jobs he has applied for that now advertise salaries not much higher than $60,000. Many used to advertise with a range between $80,000 and $100,000 in the past six to nine months, he added.

In some cases, companies are looking to attract less experienced, but still coachable, people who can be paid less than industry veterans, corporate advisers say.

Brooke Weddle, a senior partner at McKinsey & Co., said one client recently decided to stop recruiting stars, putting in place a “no more unicorns” hiring strategy, in part, to lower costs. (Unicorns are top performers with specialised skills who can command outsize salaries.)

Other businesses are considering moving jobs overseas, said Weddle, a leader in McKinsey’s group that advises on personnel issues. Instead of hiring data analysts in the U.S., for example, companies want to add people in Mexico and cheaper parts of Europe, like Poland, to save on labor costs.

“Geographic arbitrage is real,” she said.

In the U.S., some Fortune 1000 companies are moving enterprise software jobs from expensive cities such as Chicago and San Francisco to places with a lower cost of living, such as Cincinnati and St. Louis, Mo., said Keith Sims, president of Integrity Resource Management, a recruiting firm based in the Indianapolis area.

Sims, who for 25 years has helped companies recruit professionals who work with software systems like SAP and Oracle , said he hasn’t seen bosses so intent on reining in pay since the recession of 2009.

Salaries for tech jobs working with back-office and core operations business software that paid between $110,000 and $130,000 a year ago now go to less experienced hires for $85,000 to $100,000, he said. Some companies are laying off entire service areas, renaming the division and populating it with new hires at much lower compensation levels.

Hiring managers gain leverage

Overall pay for new hires in white-collar sectors increased this year, after falling in 2023, buoyed by gains in certain corners of the professional world, including law, engineering and healthcare, according to Julia Pollak , ZipRecruiter’s chief economist.

Although some tech roles that require artificial intelligence skills still offer hefty pay, many other tech jobs are advertised at lower salaries than two years ago, according to some Silicon Valley recruiters.

“Most people we interview are seeing lower salaries,” said Jill Hernstat, chief executive of Hernstat & Co., a tech recruiting firm based in the San Francisco Bay Area. “Hiring managers know they are more in control now.”

Other white-collar professions with declining new-hire salaries include finance, down 9.2% in the past year, other professional services, down 2.4% and insurance, down 1.6%, according to Gusto, a payroll and benefits software company with more than 300,000 small and midsize businesses as customers.

Pay adjustments are easing some tensions among colleagues who may have resented how much new hires were making, and the fact that tenured employees’ pay hadn’t kept up, said Tom McMullen , a senior client partner at Korn Ferry , a global organizational consulting firm.

“A lot of leaders wanted this market to cool down because they got themselves into some internal equity messes by paying through the nose for all this hot talent,” he said. “What we’re hearing is, ‘Hey, I don’t have to offer the exorbitant in-hire rates that I was offering.’”

Same work, less pay

Kate Ball was at Amazon .com for eight years, some of them as a senior recruiter, before being laid off in 2023. External recruiters have since repeatedly called her about a contract role there as a senior recruiter. Ball said the job is virtually the same as the one she had once held, but for up to 65% less pay.

Some of her former co-workers who were also laid off have taken lower-paid contract positions with Amazon: “I don’t know anyone that came back on the same package,” said Ball, 44, who has started her own HR advisory practice, Sparkle & Sass Consulting.

As Ball has applied for roles elsewhere, she has noticed some openings get reposted with lower pay ranges than were advertised weeks or months before. She applied for one job, as an employee-experience manager, went through two interview rounds, then heard nothing. A few weeks later, she saw the same job re-advertised, this time at roughly a third less than the six-figure salary she’d been quoted by the recruiter.

It is understandable, Ball said, that companies are reining in pay when they have a greater pick of job candidates than they did a couple of years ago. Still, some tactics could create ill will for employers when they have to compete more intensely for talent again.

“People will take a job now because it pays them and they’re scared, but that’s not going to last forever,” she said.

Zero-carbon technologies comprised more than 40% of global electricity generation for the first time in 2023, according to a report released Tuesday from BloombergNEF.

Renewable energy sources like wind and solar made up 17% of total electricity generation, and hydroelectric and nuclear power contributed 24%. Fossil fuels including coal and natural gas produced 57% of global electricity last year.

“We’ve consistently seen the penetration of renewables rising every year, and this year we hit quite a few milestones that had felt harder to reach in past years,” said Meredith Annex, head of clean power at BNEF.

One such milestone: Solar and wind represented more than 90% of global energy capacity additions last year, a step up from 2022. Global wind capacity also crossed the one-terawatt threshold. And Brazil, the country with the cleanest power mix of the G-20 economies, hit 88% renewable power generation in 2023.

“It just shows the momentum that the space is having. A lot of that does tie into the investment story, where you’ve got rising—skyrocketing, honestly—investment into solar,” Annex said.

Mainland China accounted for almost a third of total renewable energy output last year. The country recently reached its 2030 target for wind and solar energy six years early, according to a statement from its National Energy Administration, and it has pulled back on permits for new coal-fired power plants. The country’s rapid deployment of renewables has some analysts wondering if it will reach peak fossil fuel consumption this year. Declining emissions in China would signal a turning point because it is the world’s largest polluter, comprising nearly a third of global greenhouse gas emissions, according to the International Energy Agency.

Despite rapid growth in renewables, countries’ current commitments aren’t sufficient to limit global warming to 1.5 degrees Celsius, the goal outlined in the 2015 Paris Agreement, according to the IEA. Advanced economies would need to slash emissions by 80% by 2035 to meet the goal.

At last December’s COP28, a global climate conference hosted by the United Nations, participating countries agreed to triple renewable energy capacity by 2030. BNEF has forecast that achieving this goal would require investments in renewables to increase to 1.6 times 2023 levels from 2024 to 2030.

So far, that increase hasn’t materialised. Global investments in renewables are roughly on par with 2023 levels, at $313 billion in the first half of 2024, according to the new BNEF analysis. “We’re expecting steady growth, but steady growth does not get you to net zero,” Annex said.

The topline numbers obscure bigger changes under the surface. Average spending in the U.S. is up by about 63% compared with levels before the 2022 Inflation Reduction Act, which offers generous subsidies and tax breaks to promote decarbonisation. And while Chinese investment is actually down 4% from the same period in 2023, Annex said the dip is due to cheaper equipment for wind and solar, not a decline in demand.

The second half of this year will be a “defining moment,” for the investment landscape, Annex said. Steady growth “is definitely a positive, and it could be a sign that the industry as a whole is reaching a new kind of status quo, but we need to help expand even faster if we’re going to be in line with net zero.”