- Specialists point to the funds with an appealing long-term theme
- Volatility and construction issues aside, some ETFs still draw the eye
Having enjoyed strong returns and inflows earlier in the pandemic, thematic ETFs have come down to earth with force. Demand for such products has wilted, with flows into thematic ETFs across Europe amounting to €0.6bn (£0.5bn) in the first quarter of 2022, the first quarter since 2019 where they attracted less than €1bn.That reflects some dire performance: to cite some of the hardest hit, the VanEck Crypto and Blockchain Innovators UCITS ETF (DAGB) notched up a brutal paper loss of some 74 per cent in the first half of 2022, while the ETC Group Digital Assets and Blockchain Equity UCITS ETF (KOIP) was down by 67.7 per cent over the same period. As our chart below shows, a good number of other funds have nursed losses of at least 30 per cent over that time – from a sample of around 50 thematic ETFs, just five have ended this six-month period in the black.
These extreme examples lay bare some of the key risks of thematic ETFs. They can have a notable exposure to growth stocks, tech and the US market more broadly, and also tend to focus on overly hyped-up areas. That leads to the following concerns: that they expose investors to a trend or sector just as demand and valuations peak, that portfolio construction techniques can leave them either overly concentrated or only tangentially focused on a set theme, and that they require a high level of due diligence. This is why thematics have once again had a limited showing in the latest IC Top 50 ETFs list (IC, 8 July 2022).