Five fund buyers have revealed their favourite thematic ETFs available on the European market ranging from robotics and automation to clean water.

Thematic ETFs enjoyed a stellar 2020 with investors piling a record €9.5bn into the segment, according to data from Morningstar, in a bid to capture the stellar returns on offer.

Highlighting this, the iShares Global Clean Energy UCITS ETF (INRG) was the best performing strategy across all European-listed ETFs last year posting returns of 136% over the 12 months.

In the build-up to ETF Stream’s Big Call: Thematic ETFs event on 31 March, we spoke to five fund buyers, who revealed their favourite thematic ETFs listed in Europe and the reasons why they chose that ETF in particular.

Justin Oliver (pictured centre), deputy CIO, Canaccord Genuity Wealth Management

Our most recent thematic ETF allocation has been the L&G Clean Water UCITS ETF (GLUG). This tracks the Solactive Clean Water index of (66 equally weighted) companies that are actively engaged in the international clean water industry through the provision of technological, digital, engineering and utility services.

While the ETF is still relatively small with just $44m assets under management (AUM), we are attracted to the theme as it offers a way of capitalizing on the fact that it is estimated that up to $23.1 trillion will be needed in infrastructure investment by 2030 to keep up with the projected growth of clean water demand.

Irene Bauer (pictured centre left), founding partner and CIO, Twenty20 Investments

My favourite thematic ETF is the Invesco Elwood Global Blockchain UCITS ETF (BCHN). Blockchain’s notoriety may have been its association with bitcoin but actually, its uses are vast – secure sharing of medical data, in energy and sustainability and of course, cryptocurrencies to name but a few.

While we might have a bubble in tech, the application of blockchain is only in its infancy and will certainly get much bigger. And the ETF does not just focus on blockchain applications but also invests in providers of any technology around it – liken this to selling the shovels in the klondike of the blockchain gold.

Matt Brennan (pictured right), head of passive portfolios, AJ Bell

As rules-based investors, navigating thematics can be a challenge, ranging from patents, panels of experts and even AI techniques when it comes to constructing ETFs.

As such we like the simplicity and low costs of the iShares megatrend ETFs such as the iShares Automation & Robotics UCITS ETF (RBOT).

Thematic ETFs shoot the lights out in 2020

After a handful of companies are identified as having exposure to the theme, supply chain analysis is undertaken using FactSet data to identify companies set to benefit from the theme. The ETF is equal-weighted, offering low correlation to traditional market capitalisation weighted ETFs.

Andrew Limberis (pictured centre right), investment manager, Omba Advisory & Investments

The VanEck Vectors Video Gaming & eSports UCITS ETF (ESPO) is one of our preferred thematic ETFs not only due to a great return potential but unlike many other thematic products, it is really well-balanced.

Globally, ESPO is diversified from the US to China, Japan and South Korea. It has a good blend of size of company and also industry (from semi-conductors like Nvidia to publishers like Tencent and Electronic Arts).

This is not just a pandemic, WFH play, video gaming revenue already dwarfs the Global Box Office, NFL and the Premier League combined, and eSports is just the latest area of growth.

Sam Dickens (pictured left), portfolio manager, IG

Diversification is key when investing part of your portfolio in thematic strategies. High exposure to just a handful of companies or one specific sector can bring about outsized returns in the short term but is unlikely to be sustainable over a longer period.

Where HAN-GINS Tech Megatrend Equal Weight UCITS ETF (ITEP) is unique is that it gives investors equal exposure to eight distinct industries that are powering the fourth industrial revolution with their respective technologies.

Beware market-cap weighted indices late cycle

Importantly, for investors looking for a different type of exposure to what has driven the S&P 500 to all-time highs, exposure to the FAANGs (Facebook, Apple, Amazon, Netflix and Alphabet) is under 5% of holdings.

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