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WisdomTree reviews thematic ETFs in Europe

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Despite adverse market conditions for all growth stocks, flows in thematics across Europe remain positive, WisdomTree writes, with USD1.1 billion in Q3 and USD11.7 billion year-to-date.

Year-to-date ‘Climate Change and Sustainability’ themes continue to resonate the most with investors and have gathered the bulk of the flows in Europe. The firm writes that ‘Sustainable Energy Production’ has seen the largest positive net inflows with USD3.6 billion year-to-date.

‘Cybersecurity’ focused ETFs and ‘AI & Big Data’ focused open-ended funds were the only tech themes that have gathered significant positive net inflows in the thematic space in Q3 and so far in 2022, regardless of a challenging performance environment.

Thematic launches continue at a rapid clip in 2022 despite lacklustre performance. 56 ETFs were launched in the first nine months of the year, surpassing the record for launches, set in 2021, by 12.

Performance-wise, ‘Sustainable Energy Production’ and ‘Agriculture’ were the only themes year-to-date that have beaten the broad equity market, represented by MSCI ACWI.

In Q3, ‘Blockchain’, ‘Sustainable Energy Storage’ and ‘Fintech’ held up better than the other themes, with ‘Blockchain’ being the only theme that posted positive returns for the quarter.

Performance dispersion remains extremely elevated between the funds targeting the same themes. In ‘Sustainable Energy Production’ the best fund outperformed the worst fund by about 70% year-to-date.

Pierre Debru, Head of Quantitative Research & Multi Asset Solutions, Europe, WisdomTree says: “Thematic fund flows in Europe, this year, remain positive despite the risk off sentiment. We view this as an indication that thematics have taken a strategic place in investors’ portfolios rather than just being used as tactical exposures. We continue to see significant flows into climate change and sustainability themes, demonstrating that ESG-related strategies still have a role in portfolios regardless of the current market conditions. We expect this trend to continue as policymakers begin turning their attention to COP 27.

“Technology, which in 2022 has been one of the hardest hit sectors performance wise, continues to show bright spots with several themes gathering assets over Q3. The continuation of asset building from H1 might signal that investors see entry opportunities emerging as many corners within tech, like Cloud and Blockchain equities, are trading at significant discounts.”

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