Industry Updates

Thematic ETFs shoot the lights out in 2020

Investors have piled into thematic strategies following the strong performance

Tom Eckett

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Thematic strategies were among the best performing ETFs in Europe last year with many capturing the accelerated shift to a digitalised economy following the coronavirus crisis.

Topping the charts was the iShares Global Clean Energy UCITS ETF (INRG) which returned 136% in 2020, as at 31 December.

With already growing interest in renewable energy sources, the sector was given a further boost when Democratic candidate Joe Biden won the US election in November.

In his election campaign, Biden pledged over $2trn in climate-related infrastructure investments over the next four years, a huge boon for the industry.

Along with the strong performance, demand for INRG has been high with investors piling $3bn in 2020, according to data from ETFLogic, the fourth highest across all European-listed ETFs.

As Laith Khalaf, financial analyst at AJ Bell, said: “The renewable energy theme is one which looks like it has legs, as governments around the world seek cleaner ways to generate power to try to limit climate change.

“At the same time, increasing flows of money are being directed towards companies with strong ESG credentials, which should also help to buoy share prices.”

Just behind INRG was the $475m WisdomTree Cloud Computing UCITS ETF (WCLD) which returned 113% last year.

Cloud computing has been one of the megatrends to benefit from the coronavirus turmoil as businesses were forced to work remotely in what has proven to be a major shift in people’s working habits.

The inclusion of companies such as Zoom and Fastly while ignoring giants such as Amazon and Microsoft has been the key reason why WCLD has outperformed its rivals and been one of the best performing ETFs last year.

Other ETFs benefitting from changing habits were the $831m VanEck Vectors Video Gaming & eSports UCITS ETF (ESPO) which returned 87% in 2020 while the $268m WisdomTree Artificial Intelligence UCITS ETF (WTAI) jumped 75%.

Meanwhile, the $417m Invesco Elwood Global Blockchain UCITS ETF (BCHN), which offers exposure to companies participating in blockchain technology, rose 95%, and the $471m L&G Battery Value-Chain UCITS ETF (BATT) delivered 82% returns.

Khalaf added: “Thematic ETFs are handy options for investors who want to get access to particular themes they see playing out in the global economy, but they function like active funds in two important aspects.

“The first is that the construction of the index they track is a key determinant of returns, so in the same way active investors need to get comfortable with a fund manager’s investment approach, thematic ETF investors need to look under the bonnet at the index driving their thematic ETF.

“Secondly, thematic ETFs tend to be more expensive than plain vanilla ETFs tracking traditional indices, as a result of their more specialised nature.”

Recognising the strong demand for thematic ETFs, two specialist issuers entered the European market in 2020, Rize ETF and Global X.

These two issuers have further increased the thematic menu for investors with Rize ETF launching a sustainable foods strategy, the Rize Sustainable Future of Food UCITS ETF (FOOD), in September, while Global X unveiled the Global X Telemedicine & Digital Health UCITS ETF (EDOC) in December.

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