The Dark Side of Thematic Funds
Funds with compelling stories don't always make sound investments.
Thematic funds--which focus on emerging trends such as clean energy, robotics, legalized marijuana, or working from home--have been all the rage lately. Roughly 150 such funds have hit the market over the past three years. They’ve also been met with an enthusiastic reception; in fact, some of the industry’s fastest-growing offerings are sector funds defined around a specific theme, including the extremely popular ARK Innovation ETF (ARKK) and its theme-based siblings focusing on fintech, genomics, autonomous technology and robotics, and next-generation Internet stocks.
These funds have an understandable appeal. It’s easy to get excited about evolving technologies such as genomics, a new field of biotechnology that involves using genetic maps and DNA sequencing to improve medical outcomes. These technologies have the potential to revolutionize the field of medicine and improve millions of lives. New technologies like these come with a compelling story that’s easy to understand. But investment themes that make a good narrative don’t necessarily generate high enough returns to compensate for their risk. In this article, I’ll dig into some of the pitfalls of thematic funds.
Amy C. Arnott does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.