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The best and worst of thematic funds

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The allure of investing in a specific theme like Big Data, autonomous technology, space exploration or artificial intelligence has captivated the financial landscape, as investors increasingly seek opportunities aligned with what they see as future trends. Consequently, fund manufacturers have adeptly responded to this demand, crafting a myriad of investment products tailored to these themes. Morningstar has identified 77 of such thematic funds from Canadian-domiciled fund companies, of which 52 were launched after 2020, highlighting the acceleration of the trend.

However, for every investor that has found success in thematic investing, there are many more that have not fared quite as well. In a global Morningstar study of thematic funds, it was found that over the past 15 years, more than three-fourths of thematic funds globally have shuttered and just one in 10 survived and outperformed.

Simply put, an investor is making three distinct wagers when investing thematically: (1) that they’ve picked the right theme, (2) that they’ve picked the right manager or index that captures the theme and (3) that the theme is not already overvalued. For the few that have succeeded, returns can be extraordinary. With this in mind, this week I thought to illustrate the dramatic divergence in thematic fund performance by showing the top and bottom performers within this space in Canada with the overarching message that investors may want to proceed with caution while investing thematically.

What we found

Best and worst thematic fund performers

NameTickerBroad ThemeSub-ThemeMER (%)Total Ret YTD (%)Total Ret 1 Yr (%)Total Ret Annlzd 3 Yr (%)Total Ret Annlzd 5 Yr (%)Inception Date
Top 10
Horizons Big Data & Hrdwr ETFHBGD-TTechnologyBig Data0.5553.444.323.326.02018-06-20
BMO MSCI Next Gen Internet Inn ETFZINT-TTechnologyInternet0.4534.935.22021-01-20
Horizons Global Metaverse ETFMTAV-TTechnologyMetaverse0.6531.834.12021-11-26
Fidelity Total Metaverse ETF - LFMTV-NETechnologyMetaverse0.5619.129.72022-05-13
BMO MSCI Tech & Industrial Inn ETFZAUT-TTechnologyIndustrial Innovation0.4528.925.92021-01-26
CI Galaxy Metaverse Idx ETF CADCMVX-TTechnologyMetaverse0.6619.624.92022-04-28
Evolve Metaverse ETFMESH-TTechnologyMetaverse0.8527.524.02021-11-24
TD Global Technology Inn ETFTECI-TTechnologyMultiple Tech Themes0.5019.223.62021-11-23
Evolve Cloud Computing ETF HedgedDATA-TTechnologyCloud Computing0.8228.819.52021-01-06
Franklin Innovation FTechnologyMultiple Tech Themes0.9223.819.02021-01-22
Bottom 10
Emerge ARK Genomics & Biotech ETFTechnologyGenomics1.38-15.1-29.2-27.62019-07-29
Horizons Global Hydrogen ETFHYDR-TPhysical WorldHydrogen Economy0.86-31.8-29.32021-06-22
Horizons Psychedelic Stock ETFPSYK-NESocialCannabis + Psychedelics1.00-14.8-31.72021-01-26
iShares Genomics Imnlgy & Hlthcr ETF CADXDNA-TTechnologyImmunology0.44-26.4-32.22022-04-26
First Trust Nasdaq Clean Edge GreenEyETFQCLN-TPhysical WorldGreen Energy0.74-27.0-39.2-16.1-10.62014-10-29
Horizons Global Lithium Producers ETFHLIT-TTechnologyLithium Producers0.85-28.4-39.52021-06-22
Horizons Marijuana Life Sciences ETFHMMJ-TSocialCannabis0.86-27.3-39.6-28.2-32.12017-04-04
CIBC Clean Energy Index ETFCCLN-NEPhysical WorldClean Energy0.38-33.0-44.22021-11-16
Horizons US Marijuana ETFHMUS-NESocialCannabis1.00-10.3-45.0-36.22019-04-17
Purpose Marijuana Opportunities ETFMJJ-NESocialCannabis1.09-14.9-45.2-32.1-24.22018-01-31

Source: Morningstar Direct | Data as of Oct 31, 2023

Based on one-year trailing returns, the top and bottom performers within the Canadian-domiciled universe of thematic funds are displayed in the table accompanying this article, alongside MERs, inception dates and the thematic category and subcategory to which each fund belongs, according to Morningstar’s identification framework.

This article does not constitute financial advice, it is always recommended to conduct one’s own independent research before buying or selling any of the ETFs mentioned in this article.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/03/24 11:59pm EDT.

SymbolName% changeLast
GX Big Data & Hardware Index ETF
GX Metaverse Index ETF
Fidelity Total Metaverse ETF
Evolve Metaverse ETF
TD Global Technology Innovators Indx ETF
Evolve Cloud Computing Index Fund Hg ETF
Horizons Global Hydrogen Index ETF
Horizons Psychedelic Stock Index ETF
Ishares Genomics Immunology and Healthcare Index
First Trust Nsdq Cln Edg Green Enrgy ETF
GX Lithium Producers Index ETF
GX Marijuana Life Sciences Index ETF
CIBC Clean Energy Index ETF
Horizons US Marijuana Index CAD ETF
Purpose Marijuana Opportunities Fund

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