Thematic funds are absorbing so much the offer of the entities in such a short time that they are incurring in “danger of saturation”. These investment products have reached 600,000 million dollars (more than 525,000 million euros) under global management, much of which comes from European investors. And some companies could become more expensive than normal in the face of uncontrolled flows of money originating from these funds.
Last year, 250 thematic funds were launched, a figure that has been widely exceeded this 2021, where in the first three quarters 360 have already been registered, that is, 110 more than in all of 2020, according to José Zárate, associate of morning starat the annual investment conference (MIC) held by this analysis firm in Madrid.
For its tracking, Morningstar has developed its own taxonomy on what is and what is not a thematic fund. They include equity funds, sustainable funds and both active and passive management funds. On the contrary, they exclude fixed-income funds, growth and the sectoral ones. Regarding the latter, which a priori may seem the same, they point out that they seek “the intentionality” of the subject in question, and not that a few companies tangentially touch an economic activity.
In the last three years, the popularity -and volume- of thematic funds has skyrocketed. In Zárate’s opinion, investing in a thematic fund is like making a Triple bet: “The theme has to be durable, the fund has to pick the right stocks, and the stocks have to be attractively valued.”
Undoubtedly, the leader in this market is Pictet, with almost 53,000 million euros in thematic backgrounds. They are followed by BlackRock (including iShares) and Robeco, with around 37.2 and 21.6 billion euros, and behind them there is a group of chasing managers that move between 19,000 and 10,000 million euros, including BNP Paribas, Allianz Global Investors , Credit Suisse, Nikko AM and Fidelity.
But theory is one thing and practice is another. Because distortions are already being generated in the market. “Thematic funds tend to invest in small and very small capitalized, they tend to invest in the same companies and, therefore, there is a concentration risk,” according to the Morningstar analyst.
ARK Innovation ETF and Stratasys
For example, the average exposure to small Y micro caps in the United States is 6.65% for thematic funds, compared to 4.22% for general funds. the photo in Canada is very disturbing: 6.57% compared to 1.24%. In Europe, there is also a decompensation, although it is less: 2.72% compared to 2.15%.
The company case Stratasys, which is listed on the Nasdaq and is dedicated to the manufacture of 3D printers, shows the pressure that thematic funds are subjecting to certain types of companies. At the end of March, it had invested up to 28 thematic funds in its shareholders, which accounted for 50.4% of its free-float. Specifically, the famous -and controversial- ARK Innovation ETF he had 22.1% on his own.
The ARK Invest ETF busted out last year, up 152.5% and holdings in ‘small’ companies like Proto Labs, Compugen or LendingTree. It has grown to manage more than 21,350 million dollars (about 18,800 million euros). But its success was such that it has generated antipathy, creating a bubble within a bubble. This year it loses -2.6% and inverse ETFs have emerged that play to make money when the ARK Innovation ETF falls.
“It is very likely that many thematic funds will not survive”, Zarate warned. Irrationality has reached the thematic funds shortly after taking off. The real danger is reaching die of success