Growth, And Growth, And Growth: Thematic Funds Explode

Morningstar analyst Kenneth Lamont explains his team's taxonomy for thematic funds, laying bare the strategy's rapidly-growing popularity

Ollie Smith 31 March, 2022 | 8:41AM
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Ollie Smith: Morningstar has just published a comprehensive report into the status of thematic funds worldwide. Here to tell me a little bit more is senior analyst, Kenneth Lamont. Kenneth, thanks so much for being with us.

My first question is how does Morningstar actually define a thematic fund, given that you've slice and dice this universe in quite a unique way? What's going on?

Kenneth Lamont: Well, that's a more important question than it may sound at first glance. Our own definition at Morningstar is essentially a fund that specifically tracks one or more investment themes. So, these are themes I'm really thinking about growth themes that transcend the traditional business cycle. So, I'm thinking technological advances like the artificial intelligence or big data. I'm thinking aging populations, perhaps cannabis funds. So, really targeted, very specific cohort, which has really been under-mapped in recent years.

OS: Sure. And what changes are we actually seeing in terms of flows, popularity, et cetera?

KL: Well, in the report, please – I'd encourage anyone to dive in and read it. It's available for free. But I mean, really, the story here is one of growth and growth and growth. And sort of looking at the global picture, we've seen over the last three years, we've seen assets quadruple globally, which is really impressive. And it's not just in absolute terms, they've gone from less than 1% 10 years ago to almost 3% of global equity assets now. So, something has really changed. And we're not really just talking about Europe or the US here, even smaller emerging markets such as China or Korea, we've really seen the same thing.

OS: Sure. How can investors best use the report?

KL: So, it's interesting in its own right. But really, it's a showcase for the data that we've worked really hard in the research team to build over the last few years. And for the first time, this data set and this taxonomy that we built is available through Morningstar Direct, and it's extremely powerful. It really allows you to search for the type of thematic funds you're looking for, let's say, battery funds and to be able to compare that very quickly with all the other funds that claim to do the same thing.

OS: Great, brilliant. Thank you so much, Kenneth. For readers at home, to read the report in full, click on the link, or go into Morningstar Direct itself. Until next time, a big thanks to you, Kenneth. I've been Ollie Smith for Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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