How sustainable are thematic ETF returns?
Despite thematic exchange traded funds (ETF) enjoying great growth recently, questions have been raised about whether there is sustainable buying interest for these kinds of funds, according to a panel.
Speaking on Money Management’s ETF webinar on Wednesday, The Perth Mint’s listed products and investment research manager, Jordan Eliseo said thematic ETFs offered people to express a bet on a particular area of the market they were interested in.
“However, I do wonder just how sticky that money is going to prove to be or if it is very momentum focused and it'll pile in while a particular sector of the market is outperforming and then it'll all run away when it's underperforming,” he said.
“If you look at the ETF market in Australia, whilst there's over 200 products on the market the demand is very, very, concentrated. So only 10% of the products have basically 60% of the assets under management.
“So, one does wonder whether or not these thematic products will have sort of sustainable buying interest.”
Eliseo noted that as almost by definition, thematics were kind of active management as investors were getting exposure to just a specific part of the market.
“You're kind of engaging in a sort of form of stock selection through the ETF. There’s nothing bad with doing that, by the way, but it kind of goes against one of the core ethos' that's growing the ETF industry as a whole, which is low-cost exposure to the asset class as a whole,” he said.
Also on the panel, Phillips Wealth Partners director – senior financial advisers, Craig Phillips said thematic investing resonated with investors who were tapping into the economic changes they could see and hear taking place around them every day.
“Investors can use these thematic or sector ETFs to gain a targeted exposure to compliment their core portfolio allocation,” he said.
“So as far as benefits of thematics relate to the timing of entry and exit points as it is typically less crucial. The more cyclical sensitive investment strategies and having a thematic aspect to the portfolio can improve the sort of portfolio returns because they're typically lower correlation to the major regional or sector benchmarks.”
However, Philips noted there were risks involved in investing in thematics.
“There's the risk that the trend will take longer than expected to be established, there’s a lot of money in more concentrated area of these themes, or the risk that the actual theme doesn't materialise at all,” he said.
Recommended for you
BlackRock Australia plans to launch a Bitcoin ETF later this month, wrapping the firm’s US-listed version which is US$85 billion in size.
Financial advisers have expressed concern about the impact including private market exposure is having on their tracking error budget, according to MSCI.
State Street will restrict its membership of global climate alliance Net Zero Asset Managers after the organisation dropped its flagship 2050 goals amid ESG backlash from the US.
Betashares has launched a global shares and a global infrastructure ETF as part of the firm’s strategic expansion strategy to support financial advisers in building more diversified portfolios.
