Thematics Unlocked: Signs of a maturing ETF market - Page 3


Thematics has been the area of the ETF market that has showcased the wrapper at its best and worst in recent years . The segment has exploded over the past 24 months and now totals $ 37.4bn assets under management ( AUM ), up from $ 6.5bn at the start of 2019 , according to data from Morningstar .

The best has been the innovation that has led to better outcomes and solutions for investors . Only last month did the European market see the launch of its only ETFs offering exposure to the uranium sector via Global X and Sprott Asset Management . When looking at this market specifically , ETF investors previously could not access a segment that is crucial in the transition to a net-zero economy , as highlighted by the European Union ’ s decision to include it in its Taxonomy .
On the flipside , the worst has been the liquidity issues that have plagued some thematic ETFs , most notably the two BlackRock clean energy strategies which saw significant inflows over a short period of time and started driving the performance of the underlying stocks . The importance of liquidity in thematic ETFs is assessed in Chapter 5 of this report by Sebastien Lemaire , head of ETF research at Société Générale . He warns the huge proliferation of strategies since the start of the coronavirus pandemic has meant “ thematic indices are now competing for liquidity ”, an issue that will become more prevalent as the segment continues to grow .
The liquidity risks that came to the fore in early 2021 highlights the importance of index providers and the methodologies they choose to implement . In Chapter 1 , Joshua Kaplan , global head of research and investment strategy at MarketVector Indexes , examines why not “ all thematic indices are created equally ” and how natural language processing can help in the index construction . Customisation is one trend we are seeing in the indexing space as ETF issuers become more specific about the type of strategy they want to bring to market . How index providers capture this demand will be crucial as the thematics market continues to develop over the next decade .
Elsewhere in this report , ETF Stream interviews two fund selectors – James Penny , CIO at TAM Asset Management and Nick Mauder , investment analyst , Canaccord Genuity Wealth Management – to find out what they see as the biggest challenges and opportunities in the space as well as how they are using thematic ETFs within their portfolios .
Overall , we hope this report provides investors with further concrete understanding about the different trends taking place within thematic ETFs . From specific megatrends such as cybersecurity to ETF liquidity and the role of the digital economy , it is crucial investors understand how to unleash the potential thematic ETFs offer .
Tom Eckett
Editor ETF Stream