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European thematic flows in positive territory, despite backdrop

Investors, WisdomTree, thematicInvestors continued to allocate to thematic strategies in the third quarter of the financial year, according to WisdomTree’s European thematic quarterly update report, as $1.1 billion of investor capital flowed into European thematics ETFs and open-ended funds over the quarter.

Year-to-date flows into European thematics climbed to $11.7 billion, with climate change and sustainability themes making up the bulk of flows.

$4 billion went into open-ended funds investing across climate themes, while $6 billion went into single-themed funds.

The best month for total flows was July, as investors poured $1.5 billion into open-ended funds and $200 million into ETFs.

Open-ended funds accounted for the largest volume of flows over the quarter, at $1.1 billion.

Flows have gravitated towards green themes year-to-date, as well as in the third quarter, according to WisdomTree, with biodiversity, sustainable energy production and sustainable food being clear winners.

Year-to-date, sustainable energy production saw the largest positive net inflow figure, with $3.6 billion added to these strategies, as War in Ukraine and the ensuing energy crisis remained front of mind for investors.

Sustainable energy production and agriculture were the only themes to beat the broader equities market year-to-date.

Pierre Debru, head of quantitative research and multi-asset solutions, Europe, WisdomTree, said:

“Thematic fund flows in Europe, this year, remain positive despite the risk off sentiment. We view this as an indication that thematics have taken a strategic place in investors' portfolios rather than just being used as tactical exposures.

“We continue to see significant flows into climate change and sustainability themes, demonstrating that ESG-related strategies still have a role in portfolios regardless of the current market conditions. We expect this trend to continue as policymakers begin turning their attention to COP 27,” he added.

According to WisdomTree, flow figures indicated investors were using exposures “strategically”, adding that there was “no sign of tactical rotation out of thematics”.

Despite “lacklustre” performance, it said, thematic launches had accelerated at pace throughout much of 2022, with 56 ETFs launched in the first nine months of the year, surpassing the 2021 record for launches by 12.

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