Thematic ETFs: high mortality rate

Thematic ETFsThe ‘mortality’ rate for thematic ETFs is high – around 80% of such strategies launched before 2012 have since closed.

Taken in aggregate, the performance figures aren’t great historically, either, according to Kenneth Lamont, senior analyst, manager research at Morningstar.

This is average performance, he points out, but adds: “If you pick the right thematic strategy, it could be a very good investment for you.

“We live in a time of incredible change and if you look back at history, it is these huge structural changes that provide opportunities.”

As much as it’s about being in the right place at the right time, the theme still has to be analysed in depth. “You’ve got to look at the theme itself – is it robust? Going back to the internet funds of the late nineties and early 2000s – how many of them are still around today? Not many.”

Even thematic ETFs that do survive won’t necessarily look the same as they did at launch. “None of those names would be the same as the themes themselves change,” Lamont notes.

He uses Pictet as an example – they’re not afraid to change theme, he says. “They had an agriculture fund, part of which was suggesting that we weren’t going to have enough food in the future – this sort of Malthusian scaremongering which has been going on for hundreds of years – and they changed it to a nutrition fund. Feeding the world, they felt isn’t actually the problem, it’s feeding the world properly.”

In many senses, setting up a thematic ETF is like trying to map out unchartered waters. There are no guarantees as to how the route taken will pan out.

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