Thematic ETFs to become ‘new normal’

The next five years will see the continuing rise of thematic exchange traded funds (ETFs) and product innovation as the ability to identify and leverage long-term structural trends gains significance among investors.

According to Global X ETF Australia, the growth in thematic investments, which is now expected to become a “new normal”, coincided with the official end of Covid-19 pandemic recently declared by the World Health Organisation (WHO).

The pandemic proved that thematic ETFs allowed investors to quickly respond to market moves locally and globally and there was a significant inflows into thematic funds which peaked in early 2021 with more than US$20 billion entering the sector, according to Morningstar’s Direct data.

“As providers, we need to be at the forefront of megatrends which will offer value to investors. While Australia’s $142 billion ETF industry has been dominated historically by funds flowing to vanilla ETFs, the next five years will be characterised by the continuing rise of thematic ETFs and product innovation,” Blair Hannon, Head of Investment Strategy at Global X said.

He also stressed that millennial and younger investors particularly welcome the opportunity to be able to invest in specific sectors according to their special interests and personal values.

“The ever-expanding selection of thematic ETFs alongside core ETFs that track benchmark share and bond market indexes as well as important commodities such as gold is allowing investors to build entire portfolios using ETFs.

“This is happening as the active funds management industry comes under greater pressure,” he said.