Only 25% of thematic funds are successful, research shows
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Many new thematic equity funds in Europe are struggling to attract significant client inflows, despite booming demand for thematic products in general, research suggests.
Thematic investing is the fastest-growing equity fund segment, with assets under management in the narrowly focused investment vehicles having grown 200 per cent over the past three years to reach €300bn at the end of June 2022, Broadridge data show.
But only 24 per cent of thematic equity funds launched over the past five years have gathered assets of €300mn or more, Broadridge’s benchmark for a commercially successful launch.
“There is a hit-and-miss quality to thematic launches — success relies on picking the right theme at the right time,” said Angus McWhirter, insights consultant at Broadridge Financial Solutions.
While there is no agreed definition of what a successful launch is in terms of assets, Broadridge said €300mn was a “solid conservative definition of success”.
Timing of thematic fund launches plays an important role in determining success, according to the researchers.
“Covid-19 caused significant flows into medical innovation funds, which then tailed off after the success of the vaccine rollout became clear. During this time these funds also performed well,” said McWhirter.
“Equally, flows into agri-focused funds have been strong this year despite the wider market rout as it is an industry less susceptible to inflationary shocks, coupled with fears of a war-driven food crisis.”
Launching a fund prior to these “bursts of activity” would have increased the chances of getting a fund “off the ground”, he said.
“Conversely, launching a tech thematic fund at the beginning of this year has proven to be bad timing due to the toppy tech market/market rout and this is reflected in the poor flows into disruptive tech funds,” he added.
The researchers also found that strong brand perception was a “key determinant of success” for thematic equity funds.
Pictet, which is assessed to have the strongest brand for thematic products among fund selectors, has 15 funds in the space and 12 of them had assets of more than €1bn in June 2022, according to Broadridge.
By contrast, Global X, “a less established name and brand in the European market”, has launched 24 thematic ETFs over the past three years and gathered only €120mn in assets.
“A rising tide, in other words, hasn’t lifted all boats,” said McWhirter.
More than 260 thematic fund launches in Europe have failed to reach €300mn in Broadridge’s analysis, with only 83 funds meeting that level.
Despite this, the “resilience” of thematic strategies during the market rout this year suggested that thematic investing was not a “passing fad”, McWhirter said.
The proportion of non-thematic equity funds deemed to be a commercial success over the same five-year period was smaller than for thematic funds.
McWhirter said he would expect the average thematic fund to attract more flows “given that it is such a growth market compared to traditional core segments”.
He added that there had been “a lot” of thematic launches compared with traditional products.
*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.