Also, unlike traditional funds that follow a benchmark index, in the case of thematic funds they do not follow a specific index (those with active management) and therefore there is much greater dispersion in companies, according to the Yahoo! Finance.
Among the advantages offered by investing in themes are:
Greater diversification than sector funds
Profitability that exceeds the market if the theme is correct
Long-term investment commitment is achieved
We often hear that thematic funds also reduce volatility, but this is not necessarily the case. There are topics that are more sensitive than others to interest rate movements. Such is the case of those related to innovation, which tend to perform better during periods of low bond yields.. However, they tend to be positively correlated with the price of bonds and benefit from the weakness of the dollar due to its negative correlation with the DXY index.
It is undeniable that progress in thematic management has been exponential, especially in passive management, tending towards greater diversification and covering more asset classes.
However, as in many life decisions, timing is important. An example of the above is what happened with the ARK Innovation ETF fund, managed by the famous Cathie Wood. Investors were rewarded with returns above 150% until the end of 2020. Worse, those who joined the party later, still have negative returns.
Among the most prominent megatrends are artificial intelligence, blockchain, environment, cloud computing, big data, aging of the population, water, multithematics, mobility, health, among others.. There are mutual funds and thematic ETFs, some with a greater appetite than others, however, in the last 3 years, the assets managed in thematic funds, assets and liabilities, more than tripled, from 174,000 million dollars to 595,000 million worldwide. Everything indicates that investors do not have a strong preference for assets or liabilities, but prefer a suitable combination.
Investors prefer to invest in both actively managed thematic funds and ETFs, noted a Vontobel report. In the same report it is observed that there are countries that lead investment in thematic funds, where investors allocate more than 20% of their portfolios to thematic funds, such as: Switzerland, Benelux, Italy and the United Kingdom, while others remain for behind.
What have been the most profitable thematic funds in 2021?
The The theme of water and the circular economy has performed strongly, reaching a 1-year profitability of 31.1%, but at the same time it showed volatility in line with global equities. Regarding clean energy, solar and wind, the results were lower (22.3% according to Citywire data), however, if we look at the 3-year profitability it would be the leading profitability theme, with almost 146%. Climate-related issues reflect significant differences in the concentration of companies and the sectoral composition of the benchmark indices.
The The least profitable topics this year were biotechnology, consumer staples and pharmaceuticals and health, with returns below 20%, while at 3 years the most lagged were agriculture, infrastructure with double-digit returns, while the leaders such as clean energy, technology and robotics offered returns above 100% in the period.
Before going into specific names of funds, it should be noted that we are talking about the returns this year between -11.46% for the Renta4 Megatrend Ariema Hydrogen and Sustainable Energy fund up to + 35.58% for Pictet Water.
The first of the funds, the Pictet Water is a fund with a track record of many years, the oldest on the list of the most profitable. The portfolio has a sesgo a growth, and very oriented to industrial sector, which represents more than 54% of assets, followed by public services (almost 18%) and health (14%), among others. By region, as is often the case with many thematic funds, high concentration in North America and some exposure to emerging markets. According to the latest Morningstar data, the portfolio is comprised of 51 positions, with the top 10 accounting for 39% of assets. It should be noted that within the funds whose theme is water, the fund ranks at the top of the Citywire 1-year profitability ranking. The volatility of the fund is among the highest in its category, although it is low considering it is an equity fund.
What could be the biggest trends in the next 1-3 years?
According to the survey carried out by Vontobel, 63% of those surveyed point to urbanization and smart cities; 57% to scarce resources; 56% digital transformation of the world economy; and how could climate change and ESG not be missing.