Thematic ETFs are ‘coming of age’, says Global X

In Q3, 26 new ETFs were added, even as their assets declined by $9 billion

Thematic ETFs are ‘coming of age’, says Global X

There was a $9 billion decline in thematic exchange-traded funds (ETFs) assets in the U.S. in the last quarter, but there was also a steep increase in the number of new funds that were launched at the same time, Warner Wen, Global X’s Research Director told Wealth Professional while sharing Global X’s Thematic ETF Report for Q3 2021.

“That asset decline is the result of market movement,” he said. “That’s what caused the $12 billion decline, but it was partially offset with a $3 billion net inflow to all the thematics. What’s interesting is, despite the negative market activity, we still had net inflows to the space, and I think that goes to show investors’ demand for thematic ETFs.”

Thematic ETF assets under management (AUM) fell to $133.7 billion in Q3, down 7% from their all-time of $143.2 billion AUM at the end of Q2 2021. On a year-over-year basis, thematic ETF AUM still increased 128% from $58.6 billion at the end of Q3 in 2020. By the end of Q3 2021, thematic ETFs also represented 2% of the U.S. ETF industry’s $6.6 trillion in total AUM, which was .2% lower than at the end of Q2.

Wen’s other key finding in the report was that, during Q3, 26 new thematic EtF funds were launched – with only one being closed. That meant there now are a total of 198 thematic ETFs, up from 172 at the end of Q2.

“That makes Q3 of 2021 one of the most active quarters for thematic ETF launches,” said Wen, noting there were 13 launches in Q1 and 11 launches in Q2 of 2021, which was much higher than the nine funds launched per quarter, on average in 2020, as more issuers moved to fill the increasing demand. Global X launched more ETFs in Q3, and five are on that list of 26.

“That’s a really high number in terms of new launches,” said Wen, “but I think it speaks to the underlying investor demand for thematic ETFs as they’re looking to them as an important part of their toolbox to construct their portfolios.

“We like to say thematic investing is coming of age. It’s not brand new, but it’s been coming into the spotlight for the last 12 to 18 months. Part of the reason was the COVID pandemic. That opened people’s eyes to lots of important themes related to working at home – cloud computing infrastructure that supports our connectivity, or work from home, or entertainment at home. You also have e-commerce that is becoming increasingly important to people’s lifestyle.

“There are some other themes where COVID-19 really opened the door for more applications of these break-through technologies – in areas such as genomics. The top two vaccines were both based on genomic science,” he said, noting that investors are also finding ETFs good to diversify the equity portion of their portfolio and increase their returns.