Thematic ETFs gaining global interest, report says

Investors are increasing exposures to thematic ETFs after a year of strong performance, but they also want a higher minimum of assets before buying a fund, an industry survey says.

Thematic ETFs are going mainstream, according to a survey of almost 400 institutional investors, financial advisors and fund managers in the U.S., Europe and China from ETF custodian and administrator Brown Brothers Harriman & Co. (BBH).

Eight in 10 investors said they planned to increase exposure to thematic ETFs this year. Internet technology funds generated the most interest, followed by ETFs focused on robotics and artificial intelligence, environment and sustainability, digital assets, and health care.

More than four in 10 investors said they wanted a minimum of US$100 million in assets under management before buying an ETF. Only 11% sought the same threshold in last year’s report. Almost one-third said they looked for at least US$25 million in assets in the survey released Monday.

The survey also found thematic products may move beyond satellite positions for some investors. Over the next five years, more than one-third of respondents said thematic ETFs would account for 11% to 20% of their portfolios. That compares to almost one-quarter who said thematic ETFs would make up 21% to 50%, and just fewer than one-third who said thematic positioning would account for 6% to 10%.

However, when it came to gaining exposure to a specific sector, buying shares of an individual company was still the most popular method for almost one-quarter of investors. Buying a sector-specific ETF was next (21%) followed by a sector-specific mutual fund (20%).

The survey also found growing interest in active ETFs and environmental, social and governance (ESG) products. Almost two-thirds of respondents said they planned to increase their exposure to active ETFs, up from 57% in 2020. More than eight in 10 said they planned to increase allocations to ESG investments (not necessarily ETFs).

Almost three-quarters of survey respondents said they planned to increase their ETF allocation in the next 12 months.

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.