Thematic ETFs around the world saw the deepest outflows in the first quarter of the year as sentiment took a turn for the worse, according to a report earlier this week from Ger man financial intelligence group Qontigo GmbH.
The firm estimates thematic ETFs lost 6.9% of assets under management during the quarter, more than double its universe of “flagship” ETFs that lost 3.2% of assets.
The losses were attributed to the relative technology tilt of thematic ETFs, which have struggled mightily in the face of negative market sentiment and a Federal Reserve that’s willing to make large rate hikes that stymie valuations for growth stocks.
Thematic funds also tend to have a deeper concentration of stocks, making them prone to deeper losses in a downturn.
“They’re much more focused on a specific area, and when investors start to get concerned, they move more towards something that’s got a bit more diversification,” said Melissa Brown, Qontigo’s global head of applied research.
According to ETF.com data provider FactSet, the 290 U.S.-listed ETFs categorized as thematic have posted losses of 12.78% in the last month and have lost 21.49% year to date.
Nearly half of thematic ETFs are recent launches, with 36 thematic funds launched in the U.S. so far this year, and 111 launched in the bull market of 2021.
Brown expects issuers to continue developing thematic ETF products in the coming months, but may pivot away from tech as the basis for investment ideas.
“While there may be some short-term shift in the kind of thematics introduced to the market, I don't think it's going to impact the longer-term trend of looking for where the growth is going to be in, say, three to five years,” she said.
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