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Bloomberg Intelligence report predicts thematic ETFs to hit USD300 billion in five years

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A new report from Bloomberg Intelligence has found that Thematic ETFs ‘could become a USD300 billion category in five years.’ Thematic ETFs will capture inflows that would have gone to traditional GICS sectors, active mutual funds and momentum and size factors, BI says. 

The BI report further notes that the sector is attracting interest from retail and younger investors and its adaptability means it can invest in innovative industries and technologies as well as smaller companies that traditional GICS sectors cannot touch. 

“Theme ETFs have taken in more money over the past three years than all other sector ETFs combined. The recent selloff showed their durability with minimal outflows. With USD170 billion they already exceed the assets of any single sector and are more than double the size of any outside technology,” says BI Senior ETF Analyst Eric Balchunas. 

BI points to recent research from Brown Brothers Harriman among 382 advisers, institutions and fund managers which shows 80 per cent plan to increase allocations to theme ETFs over the next year with Europe at 69 per cent lower than the US and China. 

Themes that advisers, institutions and fund managers would like to see tracked by more products include the internet, robotics, clean energy, healthcare, cryptocurrencies, and electric vehicles. 

The BI report, BBH Theme Survey Supports Growth Prospects, notes that theme ETFs have shown an ability to retain assets during downturns – just USD700 million or less than 1 per cent exited during the two weeks to March 5th despite the market drop. 

BI believes this points to retail investors being more likely to stick with funds because they like the long-term focus. Theme ETFs also benefit because they are the focus of industry innovation and while some might be seen as gimmicky most have been able to capture imaginations and returns in ways GICS cannot. 

That is enabling them to steal market share from almost everywhere including smart-beta, sectors and active mutual funds which tend to tilt towards strategies that stick to benchmarks, BI reveals. 

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