Expect more thematic ETF launches in 2021
There could be as many as 40 launches of new exchange traded funds (ETFs) this year in areas, according to ETF Securities, but the market is unlikely to become as niche as the US.
In the US, there were thousands of ETFs in areas such as eSports, Internet of Things, obesity prevention and millennials. There was even a working-from-home ETF launched by Direxion which was invested in areas such as cybersecurity, cloud technology and remote communication.
While Kanish Chugh, head of distribution, said thematics were definitely a trend for future ETFs, the Australian market would be unlikely to expand to these type of specialist areas.
“This is the year of the thematic ETFs and ETFs will go to the next level. There could be 30 to 40 launches this year from a mix of active and passive providers,” he said.
“I expect to see thematic launches where there are gaps in the market, particularly in the climate change and sustainability space but I doubt we will ever see the niche areas that they have in the US.
“We have tended to see year-on-year growth of 30% so even if we only see 20% growth then that would still lead to total assets under management of $250 billion by 2025.”
The difference, he said, between a true thematic and a fad was the level of Government stimulus it received.
“Without Government stimulus then a trend such as working from home is only a fad rather than a thematic.”
One thematic that ETF Securities had supported was its ETFS Battery Technology and Lithium ETF which was launched in August 2018 and had returned 66% over one year to 28 February versus returns of 23% by the commodity & energy sector within the Australian Core Strategies universe, according to FE Analytics.
In line with Chugh’s comment about Government stimulus, the Australian government had invested $1.4 billion in renewable energy generation and storage and set up an Australian Renewable Energy Agency which had provided $1.67 billion in grant funding to 579 projects.
“This ETF can be used as a tactical tilt towards emerging technologies in the industrials and materials sector and as a thematic tilt towards megatrends including towards renewable energy and electric vehicles,” he said.
“The value chain for battery technology ranges from mining companies, mining for metals like lithium to manufacturers of battery storage and storage technology providers. All are potential beneficiaries of the anticipated growth in this industry.”
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Laura Dew
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