Are retail investors starting to turn to ETFs in Europe? The sharp rise in thematic ETFs would certainly suggest so.
In a key sign the retail market is finally starting to invest in ETFs this side of the pond, thematic ETFs have attracted big inflows month after month this year, according to data from Morningstar.
Thematic ETFs in Europe accumulated over €3.1bn In the first six months of the year, up from just €1.1bn seen in the whole of 2019.
The 18 months of asset growth and inflows have seen total assets under management (AUM) in the exposure grow from just over €6bn at the beginning of 2019 to just shy of €12bn at the end of June.
Monthly flows in H1 2020 have ranged from €84m seen in March when volatility struck as a result of coronavirus, to €913.3m seen in January.
A shift to a remote economy has provided numerous opportunities for investors to capitalise on a number of themes, Kenneth Lamont, senior analyst, manager research, passive strategies at Morningstar, said.
“Covid-19 has played right into the hands of some tech growth themes with the iShares Healthcare Innovation UCITS ETF (HEAL), Van Eck Vectors Video Gaming & eSports UCITS ETF (ESPO) and the First Trust Cloud Computing UCITS ETF (FSKY) have all received strong flows.”
However, ETF flow data would suggest sustainability remains a top priority for investors, even during the challenges faced during coronavirus.
“The biggest winner has been the iShares Global Clean Energy UCITS ETF (INRG) which raked in almost half a billion euros in new flows,” Lamont continued. “The chaos in the traditional energy markets has again emphasised the importance of transitioning away from non-renewable energy.”
In the US and Australia, retail-focused investment platforms such as Robinhood have seen a significant shift towards thematic products and there could be a similar trend seen in Europe too, according to Bloomberg Intelligence.
Retail investors have been a tough market to crack for ETF issuers in Europe with institutional investors still accounting for approximately 85% of all European ETF trading, according to the London Stock Exchange, but it seems they are finally beginning to grow.
Earlier this year, thematic specialist Rize ETF entered the European market and currently have four ETFs available. Stuart Forbes, co-founder of Rize ETF, told ETF Stream in March the retail audience was a particular area of focus for the firm.
“It is important that what we put out there is geared towards the retail audience as well as we see it as a growing market," he added
Furthermore, he also mentioned that thematic strategies resonate more with the retail audience but has not been captured efficiently in Europe as no one is owning the space.
Since Rize ETF entered the market with two ETFs in February, and a further two in September, its ETF range has grown to just over $30m in assets under management.
A number of other ETF issuers have launched thematic ETFs in 2020 including First Trust with a cybersecurity ETF and a biotechnology ETF as well as Lyxor with a suite of thematic ESG ETFs.
From a wealth management perspective, thematic ETFs are interesting products but might not be viable investment opportunities.
In the upcoming Q3 edition of Beyond Beta, Peter Sleep, senior investment manager at 7IM, said “thematic ETFs are always interesting because they show what is going on in the market but I am not sure that I would ordinarily buy though”.
Nonetheless, thematic ETFs have grown significantly in assets across Europe over the last 18 months, both in capital gains and net flows, so there is definitely an opportunity for returns for any type of investor.