Theme funds: tread with care
Ultimately, they belong in the 'satellite' portion of an investor's allocation - and should be added only after homework has been done, and clear exit targets have been set
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THEMATIC funds typically grab our attention because the narrative surrounding such funds is convincing, almost compelling. Think Internet of Things or robotics or disruptive fintech.
But new research by Morningstar casts a sceptical eye on thematic funds, which are generally bull market creatures - launched at the peak of markets. This doesn't bode well for long-term performance or survivorship, as research shows.
Morningstar's Global Thematic Funds Landscape report, published in May, finds a dramatic increase in investor interest in thematic funds. Over three years to March 2021, assets under management (AUM) in these funds more than trebled to US$595 billion from US$174 billion. Their share of assets is estimated at 2.1 per cent of equity funds globally, from 0.6 per cent 10 years ago.
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