Thematic mutual funds and exchange-traded funds (ETFs) had a breakthrough year in 2020, experiencing rapid growth as Covid-19 acted as a catalyst for demand. The assets of such funds domiciled in Europe increased 90% last year, while active fund assets grew 82% and ETF assets 165%, according to a new report by Cerulli Associates.
The events of the past year have forced businesses to change the way they operate, with several industries switching to remote working under lockdown. The pandemic has also placed greater focus on sustainability, digitalization, and the need to address global challenges such as resource scarcity and demographic change.
These issues have become key topics in the asset management industry in Europe, creating ideal circumstances for the sustained growth of thematic fund assets in the region.
“Thematic investing is not new to investors in Europe. It aims to capture the opportunities created by long-term structural trends in society and the economy,” says Fabrizio Zumbo, associate director of Cerulli’s European asset and wealth research team and lead author of the report. “The Covid-19 pandemic brought a high level of disruption to how we live, communicate, and do business and created the conditions necessary for a rapid increase in demand for thematic investments.”
Growth is expected to continue. According to a Cerulli survey, 96% of asset managers across Europe believe that active thematic funds will grow over the next 12 to 24 months. Not surprisingly, products with sustainability and technology themes are expected to experience a high level of demand over the next two years.
Significant demand for thematic investment is coming from private banks and independent wealth managers (IWMs) in Europe. The survey finds that 37% of asset managers expect private banks’ demand for thematic products to increase over the next two years, and 34% expect IWMs’ demand for such products to increase.
“The clients of European private banks and IWMs are increasingly interested in investing in technology themes such as artificial intelligence, next-generation and disruptive tech, cybersecurity, and 5G networks,” Zumbo says. “This is in part due to the success of mass remote working, which is likely to continue to some extent even after the Covid-19 lockdowns are fully lifted. Given the need to tackle global issues such as climate change and the health crisis, investors are also turning their attention to products that address themes such as the transition to clean energy, healthcare, water, and resource management.”
Asset managers see the highest demand for products with energy efficiency and renewable energy themes, followed by finance- and healthcare-themed products. They expect sustainability-themed products to see the most growth over the next 12 to 24 months.
The survey also shows that 92% of the ETF issuers in Europe expect demand for water-themed ETFs to increase over the same period while 86% expect increased demand for biotechnology- themed ETFs and 70% anticipate growth for healthcare-focused ETFs.