Get free exchange traded fund updates
We’ll send you a myFT Daily Digest email every morning with the latest exchange traded fund news.
Latest ETF news
Visit our ETF hub to learn more and explore our in-depth data and comparison tools
Artificial intelligence and big data-focused funds accounted for more than half of inflows into European thematic ETFs this year, according to Morningstar data.
The category recorded net inflows of €510 million in the six months to the end of June, after registering outflows of €60 million last year. Inflows account for 53 percent of the €960 million raised by all thematic ETFs in Europe.
Growing interest in AI can also be seen in open-ended investment funds, albeit to a lesser extent, with the AI and Big Data theme being the third best with inflows of €220 million.
This comes despite thematic mutual funds and ETFs seeing total outflows of $600 million after registering inflows of $1.4 billion last year and $101 billion in 2021, according to the data.
This article was previously published by Ignites Europe, a title of FT Group.
Kenneth Lamont, senior manager research analyst for passive strategies at Morningstar, said AI and big data have been arguably the main themes energizing global equity markets this year.
“The unprecedented mass adoption of generative AI solutions like ChatGPT has spread across markets and is benefiting businesses associated with this topic,” he said.
The US technology group Nvidia, which dominates the market for chips for AI systems, has more than tripled in value since the turn of the year, Lamont added.
“This renewed enthusiasm for a relatively mature theme is reflected in the sizeable net flows into thematic ETFs this year,” he said. “Few would argue that generative AI will change our lives to any extent, but who will be the real winners of this change is far from certain.”
However, he argued that the risks associated with picking a single winner could be mitigated by purchasing a basket of stocks related to the issue in the form of an ETF.
According to a report by WisdomTree, the nine best-performing thematic funds in the first half of this year focused on the theme of technological change.
“It’s likely that these topics have benefited from the rise of generative AI and the tailwinds that have come with it,” the report states.
Despite the surge in inflows into artificial intelligence ETFs, inflows into thematic ETFs have declined overall this year.
Ralph Williams, deputy director at Broadridge, said thematic ETFs had “lost some of their luster” as interest rates entered their “climbing cycle.”
“High-growth stocks that are sensitive to rate hikes made up a number of key positions [in thematic ETFs]’ Williams said.
“Appetite was also affected by decreased appetite [environmental, social and governance] Performance, greenwashing fears and regulatory uncertainty,” he added.
He argued that the past success of thematic ETFs is partly due to investors taking advantage of pandemic-related themes, most obviously in the technology, lifestyle and medical sectors.
“Fundamental to everything, however, was the concurrent surge in ESG buying in 2021, which fueled both explicit and non-explicit ESG themes thanks to the strong overlap between responsible investing and thematic outlook,” he said.
According to Morningstar, traditional investment funds continue to dominate the European theme fund segment, accounting for 90 percent of assets.
“Unlike in the US, where thematic ETFs are dominant, thematic ETFs in Europe traditionally remain an actively managed story,” said Lamont.
The majority of thematic sales in 2021 and 2022 flowed into mutual funds, while 2023 outflows are “minor” compared to previous inflows, according to Broadridge data.
“ETFs have held up better, although initial inflows have been smaller,” Williams said.
“All in all, though, the longevity argument does hold – we haven’t seen anything resembling a real sell-off,” he said.
*Ignites Europe is a news service published by FT Specialist for professionals working in the wealth management industry. Trials and subscriptions are available at igniteseurope.com.
Comments are closed.