Resolution to Lower ETF Fees in 2024?

As we look to the new year ahead, resolutions abound; many investors have resolved to lower their fund fees.  While there are many uncertainties in the market, the impact of high fees upon investment returns remains a mathematical certainty.  All else equal, funds with higher fees pose a greater drag on portfolio performance; the higher the fee, the greater the magnitude of the drag.  

This is where we hope to help.  Themes ETFs is a brand new issuer, and we have recently launched 11 new thematic and fundamental funds with expense ratios 40% and 30% below the thematic and fundamental category averages, respectively, as calculated by etf.com.¹

We are led by Jose Gonzalez-Navarro, who previously cofounded Global X ETFs in 2008.  We have a team of dynamic portfolio management professionals who collectively bring decades of prior experience and extensive expertise managing ETF portfolios for multibillion-dollar asset managers.  

The ETFs at Themes seek to provide investors with a way to own the opportunities that are shaping the future and moving markets.  Our lineup spans a wide breadth of index-tracking investment exposures, including funds with a focus on cutting-edge technologies like artificial intelligence and cybersecurity, fundamental factors like high free cash flow and natural monopolies, hard assets like gold miners, as well as traditional industries like airlines and European luxury.

We believe the current market environment presents a unique opportunity for each of these thematic investment exposures.  When central banks began tightening monetary policy in 2022, they ushered in a tale of two markets.  In this environment, not all stocks and not all sectors are created equal.  By reintroducing gravity into the investment equation in the form of higher interest rates, returns were no longer aided by the zero gravity conditions of zero percent interest rates.  In order to succeed in this environment, investment strategies will need to overcome this higher gravity to achieve escape velocity.  

While the Federal Reserve has signaled that it has reached its terminal interest rate, investors would do well to remember that the effects of monetary policy often operate on a lag and that interest rates will likely not return to zero anytime soon.  In short, the days of easy monetary policy are likely well behind us; the days of normalized monetary policy appear here to stay.

One of the most emblematic examples that illustrates this tale of two markets paradigm was the divergent impact of rapidly rising interest rates upon the banking industry, which culminated in the banking crisis of March 2023.  During this crisis, smaller regional banks like Silicon Valley Bank, Signature Bank, and First Republic Bank all collapsed.  

Meanwhile, large banks not only remained solvent in general, but some brokered bailouts or acquired the assets of these smaller regional banks, leading to further consolidation in the industry.  Here, it was clear that targeted exposure to larger banks ultimately fared better relative to exposure to both smaller regional banks and the banking industry as a whole.

Many of these large banks are also classified as global systemically important banks (GSIBs) by the Financial Stability Board.  These 28 publicly-traded banks² form the cornerstone of the global financial system and must conform to stringent regulatory requirements.  At Themes ETFs, we created our Global Systemically Important Banks ETF (GSIB), to provide targeted exposure to these 28 banks, one of the first actively-managed ETFs of its kind to do so.

In short, the current market environment has no shortage of obstacles.  Investors may face many more challenges now than in years past.  However, with obstacles come opportunities.  Investment strategies that offer targeted exposure to specific segments of the market with relatively lower fees may provide the potential needed to overcome the new gravity in this environment.  At Themes ETFs, we seek to own these opportunities through our lower-cost funds.³