Last updated: 05:54 / Thursday, 21 January 2021
A survey by Cerulli Associates

What Awaits Thematic Investing in Europe in 2021?

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  • The consensus of managers operating in Europe is that broad themes relating to technology and sustainability will prevail in the aftermath of COVID-19
  • Some 84% of the ETF issuers in Europe that responded to the survey expect "significant or moderate demand" for thematic ETFs in the next 12 to 24 months
  • Almost all the managers that responded to the survey expect demand for water-themed ETFs to increase over the next two years

The surge in demand for thematic funds in Europe last year is set to continue, according to the latest research of Cerulli Associates "The Cerulli Edge—Global Edition". This demand will specially grow in 2021 and 2022 in those strategies focused on water, biotechnology, and technology.

Net flows into sector-themed equity products during the first 10 months of 2020 amounted to 89 billion euros (108 billion dollars), more than triple the net sales for 2019. Meanwhile, assets under management amounted to 512.4 billion euros at the close of October 2020.

“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, associate director, European asset and wealth management research at Cerulli.

Some 84% of the ETF issuers in Europe that responded to the 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 28 billion euros or 32% of net inflows, followed by healthcare at 15%, and renewable energy or climate change at 12%.

Sustainability and technology first

Cerulli’s research shows that ETF issuers in Europe expect growth in demand over 2021 and 2022 to be strongest for sustainability-related themes such as water and biotechnology, closely followed by technology. Almost all the managers that responded to the survey (92%) 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% over the past five years.

The firm 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 capitalize 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% of our survey respondents believe that technology-themed ETFs will experience an increase in demand in the next 12 to 18 months,” said Zumbo.

In his view, 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 points out. In addition, several asset managers interviewed by Cerulli in Europe highlighted that thematic funds are generally easier to sell to end clients because the attached compelling narratives make the products easier to understand.

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