Historically, research methods divided investment opportunities along lines of geography, sector, asset class or characteristic. Thematic investing takes a different approach, aiming to capitalise on long-term trends by identifying and combining macro and market-level themes driven by societal transformation.
Thematic investing is experiencing significant growth. In the three years ending in June 2022, global AUM in thematic funds tripled to $660bn, with a CAGR of 50% over five years. A 2022 Brown Brothers Harriman (BBH) survey of financial advisers, institutional investors and fund managers showed that nearly 40% planned to increase their allocation to thematic ETFs over the next five years.
Today’s investment opportunities are no longer constrained by region or sector. Thematic investing moves beyond traditional investment styles and takes a data-driven approach to identifying and evaluating companies that fall within a specific theme poised to deliver growth.
Why thematic investing matters
Thematic investment is a diversification tool that seeks to deliver long-term value through future trends in themes such as technology, climate, energy or healthcare. New technology drives many thematic investments, enabling early access to growth opportunities in the world before they go mainstream.
An investment strategy built around thematic indices gives investors a data-driven way to gain exposure to companies that align with their interests, something both Gen X and millennials value. An April 2022 Global X survey found that 50% of millennials were interested in thematic investing.
The Euronext index team works closely with partners on projects that prioritise high-quality data and granularity, going beyond traditional index sector classification. For example, we leverage the expertise of Ned Davis Research thematic strategists as well as cutting-edge AI/NLP technologies to generate “Thematic Opportunities Scores” that capture how closely a given company aligns with a specific theme.
We also work with Iceberg Data Lab, which developed a measurement approach for assessing the impact on biodiversity of financial institutions through the Corporate Biodiversity Footprint (CBF) score, which largely meets the objectives of the Convention of Biological Diversity objectives and forms the foundation of our indices.
Euronext indices on trending and sustainable themes Euronext is one of the leading index providers in Europe. For the past nearly 40 years, we have been designing, calculating and publishing a wide range of indices of all sizes and profiles.
In response to the growing demand for sustainable investment tools based on key and trending topics, we offer over 350 ESG indices, making us a leading ESG index provider in Europe for structured products.
With the acquisition of Borsa Italiana, Euronext is also one of the leading exchanges for listing and trading ETFs. In 2022, we saw close to 500 new listings across our markets bringing the total to over 3,100.
Thematic and thematic sustainable investing is driving growth in ETFs. To meet the growing demand for trending and sustainable investment solutions, Euronext provides thematic indices that address some of the biggest long-term challenges of this decade such as Web 3.0, Space, and environmental preservation and biodiversity, both of which are priorities with COP15 and driven by EU regulations including EU taxonomy and SFDR.
We are leveraging new technology to go beyond traditional sector investing, focusing on a specific economic segment. By combining natural language processing (NLP) with artificial intelligence (AI), we can screen unstructured content from underused sources such as company descriptions and annual reports to develop an outcomes-based approach to identifying companies within a particular trend or theme.
These sophisticated NLP models can also spot emerging trends and opportunities. We offer several NLP-aided thematic indices that combine the expertise of Ned Davis Research (NDR) thematic strategists with AI/NLP algorithms to generate thematic opportunity scores.
These scores track a given company’s alignment with the index’s theme. These include:
The Euronext NDR Hydrogen World index, tracking the performance of companies involved in hydrogen-related activities
The Euronext NDR Web 3.0 World index, tracking the performance of companies involved in Web 3.0 activities
Wind and Solar, tracking the performance of companies actively implicated in wind and solar activities.
In response to increased interest in technology, we developed two technology-driven thematic indices:
The Euronext Tech Leaders index, dedicated to high-growth tech companies in subsectors including biotech, medtech, fintech, robotics, eCommerce, digital media and entertainment, among others.
The Euronext Helios Space index, which is the first European space-related index, launched in partnership with the European Space Agency and EC. This index selects companies by measuring upstream and downstream activities within the rapidly evolving space industry.
A special focus on biodiversity
In 2022, nearly 15% of investors added long-term social, economic and environmental products to their portfolios, and nearly 25% of all investors plan to do so within the next three years. Today, most ETFs integrate ESG criteria or use ESG versions of benchmark indices.
The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) describes multiple pressures on nature with direct consequences for human livelihood. Among them are climate change, pollution, invasive species, and exploitation of resources.
These themes are echoed in the Global Biodiversity Framework (GBF) post-2022, adopted at the UN Biodiversity Conference at COP15 in Montreal last December, and in the Taskforce on Nature related for Financial Disclosure (TNFD). As a result, financial institutions and companies are encouraged to monitor and disclose their risks and negative impacts on biodiversity.
Euronext biodiversity indices
Euronext offers several biodiversity-related indices, two of them replicated by the two largest ETF issuers in Europe:
The Euronext ESG Eurozone Biodiversity Leaders PAB index, which selects the top-ranked companies in each ICB sub-sector in the Eurozone 300 Index in terms of biodiversity score (Iceberg Data Lab’s CBF) and applies value- and sector-based exclusions. Index weights are optimised to achieve EU Paris-aligned benchmarks (PAB) for decarbonisation trajectory
The Euronext ESG Biodiversity Screened World index is designed to reflect price-level trends in shares of companies that can identify and reduce the negative biodiversity impact of their activities. The index includes ESG investment approaches and applies sector exclusions.
Over 15,000 ETFs, funds, warrants, certifications, futures, and options are associated with Euronext indices, with billions in AUM. Clients trust Euronext to design on-demand indices tailored to their needs.
For any queries, do not hesitate to contact us at index-team@euronext.com
This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To access the full issue, click here.
