Canaccord ’ s Maunder : Growing thematic ETF universe becoming harder to navigate
Investors are finding the ever-expanding world of thematic ETFs increasingly hard to navigate with significant differences between ETFs within a theme one of the main challenges
Chapter 4 : Fund buyer perspective
Author : Theo Andrew
Nick Maunder , investment analyst at Canaccord Genuity Wealth Management , has said the world of thematic ETFs is becoming harder to navigate due to the ballooning number of strategies and the large dispersions in performance .
For example , clean energy is one of the most heavily populated themes with 20 ETFs , according to Bloomberg Intelligence .
However , the performance of the ETFs year to date varies from -1.7 % for the Global X Renewable Energy Producers UCITS ETF ( RNRU ) to -20.6 % for the iClima Distributed Renewable Energy UCITS ETF ( DEGP ), according to justETF .
The number of thematic ETFs has grown from 36 in 2018 to 124 at the end of April 2022 although there are signs the market is starting to slow .
The product class saw just inflows of just € 600m in Q1 , down from € 2.1bn in the previous quarter , according to data from Morningstar .
It is this the first time since Q4
2019 that thematic ETFs have failed to gather flows of more than € 1bn and the first time since peak COVID-19 volatility where assets in the product class fell .
Maunder said : “ The everexpanding universe of thematic ETFs does bring its challenges . There is rarely a consensus view on a theme , so ETFs have vastly different holdings . This means dispersion in returns can be large .”
He added the wealth manager currently invests in three themes comprising of robotics and artificial intelligence , cybersecurity and batteries , all of which have eight , nine and six ETFs in their universe , respectively .
When it comes to navigating the ever-growing market , Maunder said it conducts thorough research of the space with a focus on three key areas .
“ When we research a theme , we consider both ETFs and active managers and consider theme purity , diversification and liquidity for the ETFs . We need to look beyond the index methodology and dive
deeper into the holdings to determine alignment with our views of the theme ,” he said .
Furthermore , Maunder said the current market environment means investors are much more conscious of company valuations meaning the often growth or momentum-orientated strategies have fallen out of favour .
The tech-heavy Nasdaq recorded its worst ever monthly performance since 2008 in April , falling 13.3 % while the S & P 500 ended 8.7 % over the same period .
The Bank of America said recently the rising risk of recession meant growth stocks were being hit particularly hard , adding while the risk was low it was being priced in for 2023 .
“ For a long time , it seemed the market cared little for valuations and now this has changed ,” he concluded .
Theo Andrew is senior reporter at ETF Stream