The thematic ETF landscape in Europe is developing at a rapid pace with an increasing number of investors looking to capture the latest megatrends in their portfolios and more ETF issuers entering the market.
Last year was a breakout 12 months for thematic ETFs with investors piling a record €9.5bn assets into the segment in Europe, according to data from Morningstar.
Along with the rising demand, thematic ETFs were among the best performing strategies last year with sectors such as clean energy and blockchain posting triple-digit returns.
New ETF issuers also entered the space with former Legal & General Investment Management (LGIM) colleagues launching Rize ETF at the start of the year and US provider Global X making its long-awaited push into the continent.
Index construction is a crucial differentiator for many thematic ETFs with a number of issuers working with industry specialists in order to produce the best products possible.
In the build-up to the Big Call: Thematic ETFs event on 31 March, ETF Stream has selected five top thematic ETFs available on the European market that manage to capture the essence of the trend they are exposed to.
WisdomTree Battery Solutions UCITS ETF (VOLT)
Battery technology is one of the key enablers in the energy transformation story with the adoption of electric vehicles a key component of the increasing demand for batteries.
There are two ETFs offering exposure to this theme in Europe, however, the $371m WisdomTree Battery Solutions UCITS ETF (VOLT) manages to avoid the inclusion of Tesla in its index, which many investors will be exposed to already.
Instead, WisdomTree has teamed-up with specialists Wood Mackenzie to create an index which weights companies based on their exposure to the battery theme.
VOLT has also recently adjusted its index methodology to incorporate an ESG screen and includes battery companies from China, a market that is forecasted to grow at over 10% a year until 2025.
L&G Clean Water UCITS ETF (GLUG)
One megatrend that is set to become one of the biggest issues facing societies across the globe is access to clean water.
According to the United Nations, water shortages are now impacting more than 3 billion people around the world driven by rising demand and poor water management while the amount of fresh water available has fallen by 20% over the past two decades.
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As a result, the $96m L&G Clean Water UCITS ETF (GLUG) offers exposure to companies actively engaged in the clean water industry in areas such as water production and processing.
LGIM has partnered with industry expert Global Water Intelligence and index provider Solactive to create an index that captures the entire value chain of the megatrend.
EMQQ Emerging Markets Internet and Ecommerce UCITS ETF (EMQQ)
With McKinsey Global Institute, forecasting annual consumption in emerging markets to reach $30trn by 2025, the $379m EMQQ Emerging Markets Internet and Ecommerce UCITS ETF (EMQQ) looks well set to benefit from this growth.
EMQQ offers exposure to almost 100 internet and ecommerce companies involved in the online consumption growth in emerging markets.
To be included in the EMQQ Emerging Markets Internet & Ecommerce index, companies must derive more than half their profits from ecommerce or internet activities, including search engines, online retailers, social networks, online video, online gaming, e-payment systems and online travel.
As a result, companies such as Tencent, Pinduoduo and Alibaba dominate the ETF.
WisdomTree Cloud Computing UCITS ETF (WCLD)
The WisdomTree Cloud Computing UCITS ETF (WCLD) has been Europe’s most popular cloud ETF having collected $663m assets since launch in September 2019.
It is well documented the dramatic rise in demand for cloud services with the market expected to deliver revenues of $350bn in 2022, according to Statista, up from $180bn in 2018.
When creating the index, WisdomTree worked with tech market experts Nasdaq and Bessemer Venture Partners which were able to source the appropriate companies for inclusion.
Unlike rival cloud ETFs, WCLD ignores giants such as Amazon and Microsoft. Although those companies currently dominate the cloud market, returns can be driven by other parts of their businesses.
Instead, WCLD selects companies such as Cloudflare and Sprout Social whose revenues are predominantly driven by cloud services.
Lyxor MSCI Disruptive Technology ESG Filtered UCITS ETF (UNIC)
For investors looking for exposure to a variety of megatrends, look no further than the $372m Lyxor MSCI Disruptive Technology ESG Filtered UCITS ETF (UNIC).
UNIC offers exposure to companies involved in long-term trends such as cloud computing, Fintech, 3D printing, the Internet of Things, digital payments, healthcare, robotics, clean energy and cybersecurity.
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With a total expense ratio (TER) of 0.15%, the ETF tracks the MSCI ACWI IMI Disruptive technology ESG Filtered index which captures large, mid and small cap companies across 23 developed markets and eight emerging markets.
Disclaimer: The author owns shares in GLUG