From Morningstar: 2024-09-24 07:48:00

Thematic funds have a rich history dating back to 1948, when the Television Fund was launched by Television Shares Management Corp. Since then, thematic funds have evolved to reflect the trends and interests of each era, from atomic and nuclear funds in the 50s to internet funds in the late 90s/early 00s.

Thematic investing involves selecting investments based on exposure to various environmental, technological, or social trends that transcend traditional business cycles. The global menu of thematic funds has grown significantly in recent years, offering investors a wider range of niche and complex strategies to choose from. Morningstar has developed a three-tier classification system to help investors understand and evaluate thematic funds.

European-domiciled thematic funds saw a surge in popularity during the covid-19 pandemic, particularly in technology and physical world themes. However, since then, thematic funds have experienced significant outflows, with the physical world theme suffering higher levels of outflows. Investors need to conduct thorough due diligence and understand the risks and potential rewards associated with thematic investing.

Picking the right thematic fund is crucial as different approaches and themes can lead to varying investment outcomes. Morningstar’s Thematic Fit Score can help investors identify funds closely aligned with their chosen theme. However, investors must also use thematic funds sensibly and avoid making impulsive investment decisions based on market hype.

Geopolitical instability and global conflict have led to increased interest in defence-themed funds, with a focus on traditional arms and cybersecurity. However, investors need to consider the purity of these themes within funds, as holdings such as Boeing and Airbus may have commercial business interests that affect thematic purity. Scrutinizing individual holdings is essential to avoid unwanted exposures.

Morningstar Direct offers a comprehensive solution for thematic investors to screen, compare, and analyze funds based on their thematic taxonomy. Users can access enriched datasets and analyst research to assess fund performance, industry concentration, sector and asset class, and investment style. With Morningstar Direct, investors can develop a better understanding of the thematic landscape and make informed investment decisions.



Read more at Morningstar: Interested in Thematic Funds? Here’s What You Need…