Over the past three years, thematic exchange-traded funds (ETFs) in Europe have grown their assets under management by more than five times to €8.5 billion, according to data from Morningstar.
Although total assets of thematic ETFs in Europe represent just under 1% of all ETF assets, the sector is growing rapidly. Nearly 30 of the 40 thematic ETFs listed in Europe date from 2018 onwards.
“We have seen a flurry of launches in the last couple of years, as the main providers build out their offerings in anticipation of continued growth in the area,” says Kenneth Lamont, senior analyst, manager research, passive strategies at Morningstar. “It’s just heating up now. Now is the right time to enter.”
Legal & General Investment Management (LGIM) is one such provider. It launched its first themed ETF about six years ago, focusing on robotics and automation. According to the firm’s head of ETFs, Howie Li, investors who had originally shunned the idea of thematic ETFs have since turned around and expressed interest in the sector.
“Back then [six years ago], the difficult part for investors was knowing how to put thematics into asset allocation. Fast-forward to now, the investing public is much more aware of how to use it,” he says.
His colleague Simon Hynes, regional head of retail distribution at the firm, says the sector is still in its early days – but there is a lot of room for growth. “There are a lot of future opportunities out there – it feels like the market is growing rapidly in terms of level of interest,” he notes.
“Themes are relatable,” Li adds. “It’s easier to relate to how an industry is growing versus a traditional fund.”
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