Investors missed out on two-thirds of the gains from thematic funds, study finds

By Steve Goldstein

It's not a surprise that investors chase hot-performing funds, and often miss out on the best performance. But this chase results in particularly poor returns when buying thematic funds, according to a new study.

The fund-tracking service Morningstar looked at thematic funds, both mutual funds and exchange-traded funds, domiciled in the U.S. as well as the U.K., Ireland and Luxembourg.

Over the five years ending June 30, thematic funds returned an average of 7.3% per year, but investors had a time-weighted return of just 2.4%.

That gap wasn't nearly as wide for non-thematic funds -- where the total returns of 8.6% compare to investors' returns of 8%.

Thematic funds are those that invest in a particular strategy, i.e. artificial intelligence. The gap in energy transition was 11.9%, and the gap in future mobility -- a category which includes the ARK Innovation ETF ARKK -- was 10.7%, Morningstar said.

The gaps are particularly wide for ETFs, the Morningstar study found. Morningstar noted ETFs those are favored as tools for making tactical bets and can attract large flows, and the greater concentration of ETF also results in higher levels of volatility.

-Steve Goldstein

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11-15-23 0628ET

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