What’s going on here?
Thematic ETFs, focused on sectors like AI and robotics, are experiencing their third straight year of investor outflows, losing $5.8 billion so far this year despite a thriving broad market.
What does this mean?
Conventional ETFs, like those tracking the S&P 500 and Nasdaq 100, are seeing $170 billion in inflows, while thematic ETFs struggle. The S&P 500’s notable 22% rise – driven by tech giants like Nvidia and Meta Platforms – has set a high standard that these niche funds haven’t matched. Investors often struggle with the precise timing needed to benefit from these niche sectors, missing potential gains. Furthermore, thematic ETFs have higher fees, averaging 0.62% versus 0.49% for traditional ones, compounded by reduced interest, as seen with Cathie Wood’s ARK Innovation ETF shedding $2.6 billion. These factors point towards a possible reassessment of thematic investment approaches.
Why should I care?
For markets: Navigating the shifting ETF tides.
Investors are increasingly turning to traditional ETFs, drawn by lower fees and steady returns. With SPDR S&P 500 ETF Trust reaching $600 billion in assets, a clear preference emerges. Thematic ETFs fail to measure up against broad market benchmarks, and even substantial holdings in stocks like Nvidia haven’t stopped outflows for funds like Global X Robotics & AI ETF.
The bigger picture: Changing currents in investment strategies.
The waning interest in thematic ETFs, along with fewer launches and more closures, reflects a shift in investor priorities amid the dominance of megacap stocks. A potential recalibration could happen once focus shifts from these market leaders, says Global X’s head of thematics. Thematic investing might realign as these dynamics evolve.