Key Takeaways from the 2024 Trackinsight Global ETF Survey: Thematic ETFs

Key Takeaway 1: The Fads of 2021

The year 2021 was a standout period for speculative investing, with thematic ETFs emerging as a popular vehicle for investors looking to tap into the latest market trends in a diversified manner.

This era was characterized by a unique confluence of factors that fueled investor enthusiasm: low interest rates, significant fiscal stimulus, and breakthroughs in technology all converged to heighten interest in various speculative themes.

During this time, thematic ETFs attracted an impressive $100 billion in inflows, with investors eagerly channelling funds into areas they believed were poised for growth.

Leading the pack were themes such as Net Zero 2050, which drew $12 billion in investments, followed by China Digitalization with $8.8 billion, Alternative Energy at $8.5 billion, and Cybersecurity, which attracted $4.8 billion. Several ETFs stood out for their alignment with these themes, offering investors targeted exposure to each sector's potential.

Notable examples included the iShares Paris-Aligned Climate MSCI USA ETF (PABU), catering to the Net Zero 2050 theme. For those interested in China's tech evolution, the KraneShares CSI China Internet ETF (KWEB) provided a gateway to leading digital firms in the country.

Finally, the iShares Global Clean Energy ETF (ICLN) offered investors a way to invest in the burgeoning alternative energy sector, while the Amplify Cybersecurity ETF (HACK) targeted companies at the forefront of cybersecurity innovation.

Key Takeaway #2: The Zeitgeist of 2023

The year 2023 began on uncertain ground for thematic ETFs, witnessing a substantial dip in investor interest. The sector saw only $6.7 billion in inflows, a stark decrease from the $14.94 billion recorded in the previous year.

This cooling off was especially pronounced in North America, where the sector experienced over $2 billion in outflows, marking the second consecutive year of negative trends in the region after a $427 million outflow in 2022.

Amid these challenging market conditions, ETF issuers took decisive action by closing underperforming thematic ETFs. The net addition of thematic ETFs in North America dramatically slowed, with only 5 new offerings in 2023 compared to 86 in the previous year.

However, the landscape for thematic ETFs shifted as the year progressed, particularly with the resurgence of interest in technology-driven themes. Artificial Intelligence (AI), Big Data, Robotics, and Automation became focal points of renewed enthusiasm as these sectors began to show promising growth.

Notably, Global X ETFs, a prominent provider of thematic ETFs, saw its Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ) and the Global X Artificial Intelligence & Technology ETF (AIQ) surpass $2 billion and $1 billion in AUM, respectively, by the end of the year.

Another area of thematic investing that captured investors' attention was the nuclear energy and uranium sector. Driven by the ongoing global energy crisis, new reactor construction plans in several countries, and rising uranium prices due to supply constraints, interest in this space surged.

ETFs such as the Global X Uranium ETF (URA) and the Sprott Uranium Miners ETF (URNM) benefited from this trend, each achieving the $2 billion AUM milestone and continuing to attract strong inflows into 2024.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.