Irene Guiamatsia

Investors are more interested in using ETFs as a vehicle for thematic investment rather than for traditional asset classes according to research from Investment Trends.

For the first time in the 13 years the ETF Investor and Adviser Report has been conducted, the researcher studied the rise of thematics in ETFs and found a marked increase in their popularity, with renewable energy funds gaining prominence among investors.

“2021 was a significant inflection point that saw the concepts of ‘doing good’ and ‘doing well’ finally coalesce in investors’ minds, with ETFs seen as the vehicle of choice providing ease of access,” Investment Trends head of research Irene Guiamatsia said.

ETF investor numbers increased 33 per cent to more than 1.7 million in the past year, with another 275,000 expected to start using ETFs in the next 12 months.

“ETF adoption reached new highs in 2021 among both investors and advisers,” Guiamatsia said. “Whether judicious or otherwise, retail investors tacitly associate passive investing with a cautious approach. The (ongoing) market turbulence certainly appears to have propelled a product that already had strong wind in its sails.”

Some 27 per cent of ETF investors used the investment vehicle as their core portfolio allocation, which is up from 16 per cent in 2020 and 4 per cent in 2019.

More thematics coming but buyer beware

With ASIC setting guidance for crypto products BetaShares, VanEck and ETF Securities all have plans to launch crypto-tracking funds in the near future.

Other thematic ETFs that have been launched in recent years includes healthcare, video games and esports, online retail, electric vehicles, and renewable battery technology.

However, the returns can heavily fluctuate. BetaShares Asia Technology Tigers was one of the top performing ETFs in 2020 returning 62 per cent, but in 2021 lost 15 per cent and so far this year has lost another 11 per cent.

ETF Securities Battery Tech & Lithium also returned 62 per cent in 2020 and 22 per cent in 2021 but has lost 6.4 per cent so far this year (as of 28 February) according to it’s factsheet.

In the previous year BetaShares and VanEck have launched climate change-focused ETFs, giving investors the chance to directly make a financial impact towards climate change. However, both those ETFs have lost a little over 8 per cent since inception just over a year ago.

For this reason, ETF providers generally recommend thematic ETFs are used as a satellite part of a portfolio with broader equity and bond funds comprising the core allocation.

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