Thematic ETFs: Very specific investment themes

Thematic ETFs in Europe have become ever-more niche, with Catholic principles and pet care among recent launches. Angela Madden reports.

There is no doubt that the thematic funds sector has matured since the launch of The Television Fund in 1948, by Chicago-based Television Shares Management, for the purpose of cashing in on the growth of TV.

In 1950, the fund expanded its horizons to become the Television-Electronics Fund and in 1970, its focus became more expansive as the Kemper Technology Fund, prior to it eventually closing down.

‘Megatrend’ investment themes are increasingly encapsulated passively by exchange-traded funds (ETFs). In Europe, the creation of thematic ETFs has trended strongly.

Some of the current thematic ETFs available have been around for some time, such as the Amundi IS S&P Global Luxury ETF, launched in 2008, which tracks a basket of mostly large-cap global luxury goods providers such as LVMH Moët Hennessy Louis Vuitton, Mercedes-Benz and Nike.

It is also worth remembering that the ETF sector emerged as recently as April 2000, when the first two ETFs based on the Euro Stoxx 50 and the Stoxx Europe 50 were listed on Deutsche Börse.

Mixed views about market opportunity
There are mixed views about the future of thematic ETFs. In March, a report from bank Brown Brothers Harriman (BBH) stated that active, thematic and ESG ETFs were poised for significant growth.

Its ninth annual global ETF investor survey interviewed nearly 400 institutional investors, financial advisers and fund managers from the US, Europe and Greater China to identify trends and areas of innovation in the ETF marketplace.

Similarly, a report from PwC at the beginning of 2022 predicted large growth for thematic ETFs, with 82% of respondents from Europe predicting that thematic ETFs would be the biggest growth area over the next 24-36 months, up from 68% in 2020.

There have, however, been setbacks. According to Morningstar data, thematic funds suffered $6.3 billion in outflows over the first six months of 2022. To put this in context, inflows over the same period last year were $142.9 billion.

A short-term phenomenon, perhaps – but these figures came on the back of other data indicating a slowdown. Global thematic ETFs and similar exchange-traded products saw net inflows of $80.5 billion last year, down almost 25% on the $106.1 billion recorded in 2020, according to ETFGI. The firm’s December 2021 ETF and thematic industry landscape insights report that total assets in thematic ETFs and exchange-traded products (ETPs) fell from $441 billion at the end of November to $437 billion at year-end.

Yet new thematic ETFs continue to be launched, with many first-of-a-kind funds becoming available to European investors this year.

“The assets under management of thematic strategies have slumped 14.3%, as growth stocks have become one of the targets of a wider sell-off in global markets,” noted Fabrizio Zumbo, Cerulli Associates’ director of European asset and wealth management research, in a report. But, he added, new products were still being brought to market.

“The assets under management of thematic strategies have slumped 14.3%, as growth stocks have become one of the targets of a wider sell-off in global market.”

In fact, the range of themes available to investors is ever-expanding, with Europe’s first themed ETF on the metaverse, pet-themed care, and recycling and decarbonisation launching in 2022.

Of late, ETF provider Global X has been noticeably active in the space with the launch of more than a dozen new sector-specific ETFs in less than a year. These sector-focused funds include autonomous and electric vehicles, wind energy and hydrogen, solar, ‘AgTech & Innovation’, cyber security, the Internet of Things and robotics and artificial intelligence.

Recent launches

ETF theme,

Global X wind energy
Global X ETFs has launched two sustainable-themed Ucits ETFs focusing on wind energy and hydrogen. The Global X Wind Energy Ucits ETF and Global X Hydrogen Ucits ETF will invest in companies expected to benefit from these respective industries. The former will track the Solactive Wind Energy v2 Index, while the latter will track the Solactive Global Hydrogen v2 Index.

According to Global X, the Wind Energy Ucits ETF will offer investors exposure to companies involved in wind energy systems, the production of wind power, wind energy technology, and the maintenance of wind power.

Meanwhile, the Hydrogen Ucits ETF offers access to those companies involved in the production, integration, development and manufacturing of hydrogen and hydrogen fuel cells.

The company also launched the Global X Solar and Global X AgTech & Food Innovation Ucits ETFs designed to offer investors access to advanced solar energy technologies and the use of technology in the agriculture and food industries, respectively.

The Global X Solar Ucits ETF invests in companies involved in solar energy materials, solar energy systems and solar power production, as well as solar installation and maintenance. The fund tracks the Solactive Solar v2 Index.

The Global X AgTech & Food Innovation Ucits ETF tracks the Solactive AgTech & Food Innovation v2 Index. The product focuses on firms offering precision agriculture, agricultural robotics and biotechnology, as well as protein and dairy alternatives.

Europe’s first Metaverse ETF
The London Stock Exchange was the venue for the launch of the ETC Group Global Metaverse Ucits ETF, a thematic ETF that aims to provide investors with exposure to the growth in the metaverse.

ETF, Metaverse,ETC Group Global Metaverse Ucits ETF was created in a partnership between ETC Group and HANetf. ETC Group is a cryptocurrency ETP provider in Europe. HANetf is a white-labelling ETF platform and issuer of thematic ETFs.

METR, the ETF’s ticker, will provide pure-play exposure to the metaverse industry, composed of companies active in VR/AR, 3D graphics, semiconductors, high-speed wireless communications, online gaming, video streaming, blockchain technologies including NFTs, and digital land, and connected cloud, file, and data storage.

This is the second thematic Ucits ETF from the ETC Group in collaboration with HANetf, following the ETC Group Digital Assets & Blockchain Equity Ucits ETF.

WisdomTree launches recycling decarbonisation ETF
WisdomTree Recycling Decarbonisation Ucits ETF will track the Tortoise Recycling Decarbonization Ucits Index. It listed in April on the London Stock Exchange, Börse Xetra in Frankfurt and the Borsa Italiana.

Said to be the world’s first recycling decarbonisation ETF, it provides exposure to global companies involved in waste-to-energy and recycling technologies as part of the global decarbonisation megatrend.

The ETF classified as an Article 9 fund under the EU’s green labelling rules contained in the Sustainable Finance Disclosure Regulation and will track global companies involved in recycling technologies including the transformation of waste to energy.

In that same month, WisdomTree also launched thematic metal ETFs – the WisdomTree Energy Transition Metal ETC [exchange-traded commodity] and WisdomTree Battery Metals ETC.

The Energy Transition ETF is exposed to electric vehicles, transmission, charging, energy storage, solar, wind and hydrogen power production, and currently includes copper, nickel, aluminium, silver, zinc, tin, platinum and gold.

Niche pet care theme
One of the themes now available in Europe is pet care through the Rize Pet Care Ucits ETF.

‘PETZ’ invests in companies that could benefit from the rise in stress-busting ownership and ‘humanisation’ of pets, including wholesome pet food makers, pet healthcare providers and veterinary products.

The ETF tracks the Foxberry Pet Care Index of 29 companies.

Grayscale Investments partners with HANetf
New York-based digital currency asset manager Grayscale Investments listed the Grayscale Future of Finance Ucits ETF (GFOF) across Europe.

The firm collaborated with European Ucits ETF issuer HANetf to create GFOF, which tracks the performance of the Bloomberg Grayscale Future of Finance Index. It provides investors with exposure to companies that are “building the digital economy”, including those specialising in digital assets and technology.

HSBC launches biodiversity ETF
ESG is a mainstream theme, but HSBC Asset Management launched an ETF specifically linked to biodiversity. The HSBC World ESG Biodiversity Screened Equity Ucits ETF tracks the Euronext ESG Biodiversity Screen Index.

The ETF will be classified as Article 8 under SFDR regulations, defined as ESG-linked but not specifically an impact fund.

It tracks the Euronext ESG Biodiversity Screened index series, a group of biodiversity-screened benchmark indices based on a range of equities using Euronext World as the parent index.

The ESG Biodiversity Screened Index, launched in December 2021, was developed in conjunction with HSBC, Euronext and French financial technology company Iceberg Data Lab.

HANetf expands in Spain
HANetf, which helps asset managers launch ETFs, registered 19 of its ETFs in Spain over the past year, bringing its total number of products registered in the country to 35.

The UK firm’s new funds included several “first-of-their-kind” thematic fund strategies, such as the Electric Vehicle Charging Infrastructure Ucits ETF, the Medical Cannabis and Wellness Ucits ETF, and ETC Group Global Metaverse Ucits ETF.

The ETFs were in addition to 16 exchange-traded commodities already ‘passported’ into Spain, including The Royal Mint Responsibly Sourced Physical Gold ETC (RMAU) and SparkChange Physical Carbon EUA ETC (CO2).

BlackRock’s financial tech fund
BlackRock expanded its thematic ‘megatrends’ platform with the launch of the BlackRock Future Financial and Technology ETF.

The ETF is actively managed by BlackRock’s fundamental equity franchise, headed by specialist financial technology portfolio manager Vasco Moreno. The fund targets companies delivering innovative and emerging technologies that are driving disruption in financial services.

The fund is the latest in BlackRock’s range of thematic ETFs. In 2021, BlackRock launched the Future US Themes ETF and the BlackRock Future Climate and Sustainable Economy ETF.

Last year it launched ETFs on the themes of future tech, future innovators, and future health.

Fineco AM enters Europe ETF market with two thematic products
Italy’s Fineco Asset Management rolled out two thematic strategies tracking cyber security and semiconductors.

The Fineco AM MSCI ACWI IMI Cyber Security Ucits ETF and the Fineco AM MSCI World Semiconductors and Semiconductor Equipment Ucits ETF were set to list on the Borsa Italiana.

FAMMAI tracks the MSCI ACWI IMI Cyber Security Index, which offers exposure to large, mid and small-cap stocks across 23 developed markets and 24 emerging markets. This includes companies that provide hardware and software products, cyber-security services, implementing and managing network security protocols and ensuring data integrity.

Franklin Templeton launches Catholic principles ETF
Franklin Templeton launched an ETF built around Roman Catholic principles. The Catholic Principles Emerging Markets Sovereign Debt Ucits ETF forms part of the firm’s $12 billion LibertyShares ETF range.

The strategy invests in both euro and dollar-denominated sovereign debt issued by emerging market countries. It excludes bonds issued by countries that score poorly on several criteria required to conform with Roman Catholic principles. A government’s moral integrity and record of social justice are factors, along with abolition of the death penalty and care for the planet based on ESG ratings data.

The ETF is widely available across Europe, including in countries where Catholicism is particularly strong, such as Ireland, Italy and Spain.

© 2022 funds europe



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