Thematic funds may have grown dramatically in the past three years, to $195 billion in assets under management worldwide vs. $75 billion three years ago, but they’re still only 1% of total global equity fund assets, states Morningstar in a new study on these products.
Though 154 new thematic funds were launched in 2019 (down from 169 in 2018), there are only 923 of these funds in the Morningstar global database, according to the Global Thematic Funds Landscape report by Morningstar Director of Global ETF Research Ben Johnson, senior analyst Kenneth Lamont and analyst Daniel Sotiroff.
Of thematic funds launched prior to 2010, less than half still exist, while of the funds launched prior to 2015, 69% have survived. Only in four outperformed the MSCI World Index over that 10-year period.
And globally, fees are higher than non-thematic counterparts.
So exactly why have they exploded in growth, at least overseas?
“This is a space that is very cyclical,” Johnson told ThinkAdvisor. “The growth tends to coincide with bull markets, so it’s not surprising that over the course the past five years, we’ve seen pretty significant growth given in large part because the market’s been very favorable.”
Defining Thematic Funds
The report defines thematic funds as those that “attempt to harness secular growth themes ranging from artificial intelligence to cannabis.” These funds are very focused, so sustainable funds may be included, such as those that capitalize on a transition to a low-carbon economy. However, those funds that are broader in scope, such as overall environmental, social and governance funds, are not.
Morningstar has broken the funds into four broad themes: Technology, physical world, social, and broad thematic, which then include specific areas. For example, social includes consumer, demographics, security, wellness and politics. The demographic area, in turn, contains funds that focus on population aging and other demographic trends.