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Speculating with thematic ETFs

thematic_etfsThematic ETF providers creating funds linked to aging, climate change and a host of other themes have large quantities of data to deal with when constructing products.

Although it is easy for companies within the same industry to understand any available data, asset managers won’t just be “downloading it off Bloomberg”, says Howie Li, head of ETFs at Legal & General Investment Managers (LGIM). “We’ve got to take that data, structure it, and implement an investment strategy there.”

A lot of active research goes into the construction of a thematic ETF’s theme, according to Li, including working with experts who, for example, might produce data on companies in a particular theme to find out drivers for growth.

But thematic ETFs do not have the best track record, despite their high focus on single themes.

Kenneth Lamont, a senior analyst and passive expert at Morningstar, says it is important to consider that on average, in the past these strategies haven’t performed well.

Yet he adds that it is difficult to judge the performance of a robotics fund if the claim is that the relevant industry trends are not yet at a tipping point yet.

“There’s always an element of speculation here,” says Lamont.

The general consensus is that the thematic ETF sector is still nascent with many themes yet to play out properly – particularly AI and robotics. But providers would argue that this is the whole point of a thematic ETF: to provide investors with early access to a money-making megatrend.

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