Spurred by a rush of assets into several exchange-traded funds run by ARK Investment Management LLC, the category-defying, trend-chasing genre of thematic ETFs has taken off.
Through April 6, thematic ETFs attracted $26.4 billion in net new flows across 113 funds, compared with $26.1 billion for all last year. Aggregate assets now stand at $99 billion, according to FactSet Research Systems Inc., following a year in which nine of the 12 largest thematic products experienced returns of more than 100%.
Though such products have generally been the domain of retail investors and financial intermediaries, 29 thematic ETFs now top $1 billion in assets and many of those are making their way into more institutional portfolios.
"There's been a lot of attention to themes because they align with some investors' beliefs and give them something to connect with," said Lois Gregson, senior analyst for ETF analytics at FactSet, "but bringing out an ETF requires that there are enough stocks, with enough liquidity, to make it investible."
According to Ms. Gregson, theme products must cross multiple sectors, often focusing on a megatrend, without having too wide a berth. (ARK's flagship product, the $23.7 billion ARK Innovation ETF, for example, is categorized by FactSet as a "multithemed" ETF.)
Some of the more popular themes focus on specific emerging or disruptive technologies, sectors and industries affected by changing demographics and consumer attitudes, and shifts in regulation. Water, clean energy and infrastructure funds were among the earliest to launch, more than a decade ago, but now themes have exploded. Among the funds gathering the most assets this year include ARK Genomic Revolution with $3 billion, ARK Fintech Innovation at $2.3 billion, and iShares Global Clean Energy at $2.1 billion.
"We look at themes compared to the traditional GICS (Global Industry Classification Standard) sectors they are disrupting," said Jon Maier, chief investment officer at Global X Management Co. LLC, a unit of Mirae Asset Global Investments Co. Ltd. Global X manages 73 U.S.-listed ETFs with more than $26 billion in aggregate assets under management, including thematics focused on battery tech, artificial intelligence and more. It also publishes several model ETF portfolios that weight themes by forward earnings growth. Mr. Maier estimates that more than $300 million in assets are tracking thematic model portfolios published by Global X.
According to 13F filings, institutional owners of thematic ETFs include the C$475.7 billion ($378 billion) Canada Pension Plan Investment Board, The Workers Social Insurance Fund, $30.9 billion Employees Retirement System of Texas and Clal Insurance Enterprises Holdings Ltd.