European Retail Investors Are Embracing Thematic Investment

May 6, 2021 — London

The coronavirus pandemic has created the perfect conditions for thematic investing to take hold

Cerulli Associates’ latest report, European Distribution Dynamics 2021: Reassessing Growth Opportunities, shows that thematic mutual funds and exchange-traded funds (ETFs) had a breakthrough year in 2020, experiencing rapid growth as COVID-19 acted as a catalyst for demand. By the end of last year, the assets of thematic mutual funds and ETFs domiciled in Europe had increased 90% year-on-year; active fund assets grew 82% and ETF assets 165%.

The events of the past year have forced businesses to change the way they operate, with several industries switching to remote working under lockdown. In addition, the coronavirus pandemic has placed greater focus on sustainability, digitalization, and the need to address global challenges such as resource scarcity and demographic change. These issues have become key topics in the asset management industry in Europe, creating ideal circumstances for the sustained growth of thematic fund assets in the region.

“Thematic investing is not new to investors in Europe. It aims to capture the opportunities created by long-term structural trends in society and the economy,” says Fabrizio Zumbo, associate director in Cerulli’s European asset and wealth research team and lead author of the report. “The COVID-19 pandemic brought a high level of disruption to how we live, communicate, and do business and created the conditions necessary for a rapid increase in demand for thematic investments.”

Although 2020 will be remembered for the above-par performance of thematic funds and ETFs, growth in this domain is still under way. In fact, 96% of the asset managers Cerulli surveyed across Europe believe that active thematic funds will grow over the next 12 to 24 months. Not surprisingly, products with sustainability and technology themes are expected to experience a high level of demand over the next two years.

Significant demand for thematic investment is from private banks and independent wealth managers (IWMs) in Europe—and they are set to develop their interest in this approach still further. More than one-third (37%) of the asset managers Cerulli surveyed expect private banks’ demand for thematic products to increase over the next two years; 34% expect IWMs’ demand for such products to increase.

“The clients of European private banks and IWMs are increasingly interested in investing in technology themes such as artificial intelligence, next-generation and disruptive tech, cybersecurity, and 5G networks,” adds Zumbo. “This is in part due to the success of mass remote working, which is likely to continue to some extent even after the COVID-19 lockdowns are fully lifted. Given the need to tackle global issues such as climate change and the health crisis, investors are also turning their attention to products that address themes such as the transition to clean energy, healthcare, water, and resource management.”

Cerulli’s research shows that asset managers are currently experiencing the highest demand for energy efficiency- and renewable energy-themed products, followed by finance- and healthcare-themed products. They expect sustainability-themed products to see the most growth over the next 12 to 24 months. A significant majority (92%) of the ETF issuers Cerulli surveyed across Europe expect demand for water-themed ETFs to increase over the same period and 86% expect increased demand for biotechnology- themed ETFs. Finally, 70% anticipate increased demand for healthcare-focused ETFs.

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Note to editors

This and several other new findings make up The Cerulli Report―European Distribution Dynamics 2021: Reassessing Growth Opportunities, which features in-depth analysis of the European fund management industry and outlines the key trends in the region’s main fund markets. Cerulli’s team of international analysts has examined the state of mutual fund and exchange-traded fund (ETF) distribution across the main European asset management markets and assessed the implications for asset managers.

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