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Odds stacked against thematic investors

By Grace Ormsby · March 10 2020
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egg

Invest

Odds stacked against thematic investors

By Grace Ormsby
March 10 2020
Reading:
egg
Odds stacked against thematic investors

Odds stacked against thematic investors

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By Grace Ormsby · March 10 2020
Reading:
egg
Odds stacked against thematic investors

A new research report has compared thematic investment funds to gambling — a trifecta bet of sorts.

Morningstar has published its Global Thematic Funds Landscape Report, in recognition of an increased investor appetite for thematic funds.

Over a three-year period to 31 December 2019, Morningstar has noted collective global investment in thematic funds has tripled from around $75 billion to $195 billion.

A total of 154 new thematic funds debuted worldwide in 2019 alone.

But despite an increase in funds available, the long-term performance figures for thematic funds “are pretty unflattering”.

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Just 45 per cent of all thematic funds launched prior to 2010 have managed to survive to 2020.

Just one-quarter of those have both survived and outperformed the MSCI World Index over that 10-year span.

Morningstar has reported that investors in thematic funds “are making a trifecta bet”.

They are betting that they will:

1. Pick a winning theme.

2. Select a fund well placed to harness that theme.

3. See valuations that indicate that the market hasn’t already priced in the theme’s potential.

According to Morningstar, “the odds of winning these bets are low, but the prospective payouts can be large”.

“That said, those that [pick] who do win, can win big.”

The report provided the example of the ARK Next Generation Internet ETF.

Anyone who invested in this ETF at the beginning of 2015 “would have raked in annualised returns of 27 per cent through the end of 2019”.

That’s three times the return of the MSCI World Index over the same period.

Odds stacked against thematic investors
Odds stacked against thematic investors
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About the author

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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About the author

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

Join The Nest Egg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

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