The market for thematic investment funds still offers a significant opportunity for asset managers and ETF issuers, particularly in the passive sphere, according to a report by Cerulli Associates.
Cerulli’s analysis shows that thematic funds have been one of the fastest-growing segments of the European asset management industry over the past five years.
Total AUM within thematic mutual funds and ETFs reached €409 billion ($438bn) at the end of 2021, up from €91bn in 2018.
However, in 2022, the picture was markedly different from previous years: the AUM of active and passive thematic funds domiciled in Europe decreased by 23.7% €312bn.
Despite this pull-back and ongoing market volatility, Cerulli believes that fresh opportunities exist for product providers that focus on building strong value propositions based on robust structural trends, themes, and detailed research.
Fabrizio Zumbo, Director, European Asset and Wealth Management Research at Cerulli Associates, said: “Thematic fund providers should build strong partnerships with sector experts to ensure product longevity. Managers may find new opportunities by enhancing their distribution partnerships with large local players across Europe to improve their reach.”
Cerulli’s analysis suggests that a modest recovery took place in the first quarter of 2023, and expectations for growth for such products remain positive for the next two years, especially for passive products.
According to the research, while just 8% of asset managers expect fast growth (greater than 10%) of active thematic mutual fund assets over the next 12 to 24 months, respondents are more positive when it comes to thematic index funds: 39% expect fast growth while a further 21% expect moderate growth. Only 5% believe there will be no asset growth across active and passive thematic funds.
Battery technology, climate change, and biodiversity are expected to be the most in-demand investment themes with approximately half of respondents expecting demand from independent wealth managers and financial advisors to increase.
Zumbo added: “Our research shows that demand for ESG products is here to stay and that sustainable thematic products, which are at the intersection of ESG and thematic investing, will continue to enjoy a healthy level of demand from retail clients in different European markets over the next 12 to 24 months.”