Thematic funds had another banner year in 2021 with a huge rise in new fund launches and assets closing in on 3 percent of all equity investments globally, according to new research from Morningstar.
Last year saw a record 589 new thematic funds created, more than double the previous record of 271 in 2020, finds the report. Europe remains the biggest market for thematic funds and in 2021 saw its global market share of assets rise to 55 percent.
Thematic funds focus on a particular investment theme, such as cyber-security, clean energy or cloud computing. While they cover a huge variety of areas, funds tracking ESG and emerging tech themes have been key to burgeoning investor demand.
‘In recent years, we’ve seen a dramatic rise globally in the popularity of thematic funds,’ comments Kenneth Lamont, senior manager research analyst at Morningstar, in a statement. ‘Our data shows these funds’ assets are growing to record levels across the globe and, as the menu of themed funds continues to expand, investor demand for clarity and guidance has increased commensurately.’
Globally, thematic-fund assets have more than tripled over the three years to the end of 2021, hitting $806 bn, reveals the Morningstar report. They now account for 2.7 percent of worldwide equity assets, a rise from 0.8 percent a decade ago.
The research notes that no asset manager is dominant on a global basis. Europe-focused Pictet Asset Management is the biggest provider, with assets under management of $66 bn, followed by BlackRock, including the iShares collection of ETFs, and Japan’s Nikko AM.
ARK Financial, which grew to prominence during the Covid-19 pandemic under the leadership of Cathie Wood, holds fifth place. The firm’s ARK Innovation ETF was the largest thematic fund at the end of 2021, with $16.2 bn in assets, but is likely to have fallen from the top spot due to the January sell off in high-growth tech names.
Morningstar points out that thematic ETFs have a good track record over the last three years, but the longer-term picture is less rosy. In the three years to the end of 2021, more than half of funds outperformed the Morningstar Global Markets.
But just one in 10 beat this benchmark over a 15-year period, and more than three quarters of funds available to investors 15 years ago have subsequently closed.