Cerulli Associates finds thematic investing in Europe will continue to attract assets

Fabrizio Zumbo, Cerulli Associates

Research conducted by Cerulli Associates finds that thematic ETFs enjoyed a boom over 2020 and their popularity is set to continue over 2021. Net flows into sector-themed equity products during the first 10 months of 2020 amounted to EUR89 billion (USD108 billion), more than triple the net sales for 2019. Assets under management amounted to EUR512.4 billion at the close of October 2020, the firm says.

According to research from Cerulli Associates, demand for funds with themes focused on water, biotechnology, and technology is likely to increase over the next 12 to 24 months.

“The consensus of managers operating in Europe is that broad themes relating to technology and sustainability will prevail in the aftermath of COVID-19 and longer term,” says Fabrizio Zumbo (pictured), associate director, European asset and wealth management research at Cerulli.

Some 84 per cent of the ETF issuers in Europe that responded to a Cerulli survey expect significant or moderate demand for thematic ETFs in the next 12 to 24 months. Over the first 10 months of 2020, technology-related themes were the most popular, attracting a combined EUR28 billion or 32 per cent of net inflows, followed by healthcare at 15 per cent, and renewable energy/climate change at 12 per cent.

Cerulli’s research shows that ETF issuers in Europe expect growth in demand over the next 12 to 24 months to be strongest for sustainability-related themes such as water and biotechnology, closely followed by technology. Almost all the managers that responded to Cerulli’s survey (92 per cent) expect demand for water-themed ETFs to increase over the next two years. Combined active and passive assets in the water-themed sector have achieved a compound annual growth rate (CAGR) of 23 per cent over the past five years, the firm says.

Cerulli believes that asset managers can source new opportunities from working closely with technical experts in fields such as biotechnology and healthcare to ensure that specialist funds are able to capitalise on areas of potential growth.

“Technology themes, which include artificial intelligence, cybersecurity, and 5G networks, are expected to continue to attract high demand, in part due to the success of mass remote working, which is likely to continue to an extent post-pandemic. Some 84 per cent of our survey respondents believe that technology-themed ETFs will experience an increase in demand in the next 12 to 18 months,” says Zumbo.

“Investors are becoming more comfortable with using thematic ETFs for diversification and to express their investment objectives—a reflection of how the product set is evolving,” he says. In addition, according to several asset managers interviewed by Cerulli in Europe, thematic funds are generally easier to sell to end clients because the attached compelling narratives make the products easier to understand, the firm writes.

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