Themes US R&D Champions ETF (USRD)

USRD is an actively managed ETF sponsored by Themes ETFs (a division of WisdomTree) that selects US-listed companies based on the intensity and magnitude of their research and development investment. It is a thematic fund — one that identifies a structural trend or business characteristic and builds a portfolio around companies that embody it — rather than a traditional sector or style fund.

The selection logic: innovation as a fundamental filter

USRD does not hold a fixed list of stocks. Instead, the management team regularly screens the US equity market for companies where research and development spending — both absolute dollars and as a percentage of revenue — is high and sustained. The premise is straightforward: companies that invest heavily in R&D are betting on future growth, and that capital deployment is a signal of competitive seriousness in innovation-driven sectors. Technology firms, pharmaceutical and biotech companies, semiconductors, industrial equipment makers, and software companies naturally dominate the portfolio because their competitive position depends directly on the steady stream of new products and processes R&D produces.

The screening is quantitative but with active oversight. R&D spending is measured from audited financial statements — companies report it in their 10-K filings — so the data is verifiable. The fund then selects from companies above a threshold, with some discretion to ensure sector and market-cap diversity and to avoid concentration in any single company. This is not a purely mechanical index approach; the active management includes a human judgment layer about what counts as meaningful innovation versus mere R&D expense.

Who is in the portfolio, and why this approach matters

The fund’s holdings skew heavily toward the technology and healthcare sectors, where R&D is a non-negotiable component of competition. A software company, a semiconductor designer, a pharmaceuticals maker — none can compete without constant innovation. But the fund also holds manufacturers, industrials, and occasionally consumer companies if their R&D spending is sufficiently material. The diversification is meaningful but uneven; the largest holdings tend to be mega-cap technology firms because they spend more on R&D in absolute terms than nearly any other companies on Earth.

This creates a subtle but important distinction from a traditional large-cap technology index fund. USRD is not “technology stocks”; it is “companies where innovation spending is a defining strategic characteristic.” That can include companies that are not in the technology sector by industry classification but that spend like technology companies because their markets are intensely competitive and innovation-driven.

The economics of the approach and its limitations

The thesis underlying USRD is that sustained R&D spending correlates with durable competitive advantage and future earnings growth. This is intuitively appealing — firms that innovate tend to outperform — but empirically it is complicated. R&D efficiency varies wildly. Some companies convert R&D spending into blockbuster products and strong returns; others spend lavishly and produce little that reaches the market. The fund’s selection does not distinguish between the two; it simply identifies high spenders. Additionally, R&D spending can be a sign of competitive stress as easily as competitive strength: a company might spend heavily because it is in a commoditizing industry and needs to innovate just to stay afloat, not because it is a growth leader.

There is also a recency bias inherent in the approach. Companies can cut R&D dramatically in hard times, and R&D spending tends to be procyclical — high in booms, reduced in recessions. A stock’s R&D intensity as of today may not reflect its R&D intensity next year. This means the portfolio composition can shift significantly when the economic cycle turns or when individual companies face margin pressure.

Sector concentration and market risk

Because innovation is unevenly distributed — concentrated in technology, healthcare, semiconductors, and software — USRD is inherently tilted toward growth and toward companies that have benefited from the long secular rise of technology. The fund does not include utilities, real-estate investment trusts, banks, or traditional “value” stocks, because those sectors are not R&D-intensive by nature. This makes USRD a concentrated bet on growth and innovation as persistent themes in equity markets. In periods when growth stocks underperform, USRD will underperform the broader market.

The fund’s returns are also tied to the overall health of the companies’ innovation. If a technological disruption favours different companies than those currently in the portfolio, or if the return on innovation declines across the tech and healthcare sectors, the fund suffers. This is true of any growth-tilted strategy, but it is worth understanding before buying.

How to research this fund

Start with the fund’s fact sheet and current holdings, available on Themes ETFs’ or WisdomTree’s website. The holdings should be legible — recognisable names in technology, pharmaceuticals, semiconductors, and software. Compare the fund’s performance against a broad large-cap index and a dedicated technology index to understand whether the R&D selection has added value or merely introduced sector overlap. Review the fund’s turnover ratio to gauge how frequently the management team refreshes the portfolio; moderate turnover (50–100% annually) is typical for an actively managed thematic fund.

Because the fund is actively managed, the prospectus and any published commentary from the sponsoring firm should explain the selection criteria and how R&D intensity is measured. Finally, be aware that a portfolio of high-R&D companies will be more volatile than the broad market during cycles of sentiment shift; that is the price of the innovation tilt.