The
world
can
be
weird
and
wonderful,
and
the
same
is
pretty
much
true
for
investing
too.
In
the
world
of
exchange-traded
funds
(ETFs),
you
can
pretty
much
find
a
fund
for
any
theme
you
believe
in.
If
you’ve
ever
read
our
monthly
round-up
of
best
and
worst-performing
ETFs,
you
will
be
familiar
with
some
of
the
more
unique
strategies
out
there
–
for
example,
in
the
top
10
best
performers
for
2023,
we
find
blockchain,
bitcoin
and
the
metaverse
leading
on
returns.
At
the
bottom,
there’s
products
focused
on
charging
infrastructure
and
hydrogen
equities,
and
commodities
like
rhodium
and
palladium.
Unique
ETF
launches
are
often
attracting
a
fair
bit
of
media
attention,
too.
For
example,
Rize
launched
Europe’s
first
pet
care
ETF
in
2022 –
but
subsequently
closed
in
November
last
year.
Just
a
few
days
ago,
HANetf
and
Sprott
Asset
Management
launched
Europe’s
first
junior
uranium
miners
ETF.
Clearly,
investing
in
your
interests
and
backing
unique
ideas
could
make
investing
more
interesting,
but,
our
analysts
say
beware.
According
to
a
Morningstar
report
from
senior
analyst
Kenneth
Lamont
and
manager
research
director
Matias
Möttölä,
buying
and
selling
habits
connected
with
thematic
funds
show
that
investors
are
often
losing
money
because
of
timing
issues.
In
fact,
over
a
five-year
period,
they
lost
more
than
two
thirds
of
total
returns
because
of
poorly
timed
buys
and
sells,
a
considerable
destruction
of
value.
This
gap
is
even
wider
when
looking
exclusively
at
ETFs.
In
the
most
dramatic
example,
Technology
and
Physical
World
themed
ETFs
have
an
“investment
gap”
500-600
basis
points
higher
than
their
traditional
mutual
funds
peers.
Lamont
and
Möttölä
explain:
“This
reflects
differences
in
the
exposures
offered
by
the
two
vehicles.
Thematic
ETFs,
which
can
be
traded
on
exchange
throughout
the
day
and
tend
to
invest
in
more
focused
baskets
of
stocks,
are
often
favoured
as
tools
for
making
tactical
bets
and
can
attract
large
flows.
ETFs’
greater
concentration
also
results
in
higher
levels
of
volatility.”
What
ETFs
Are
Out
There?
This
raises
questions
about
just
how
investable
niche
ETFs
are,
and
the
amount
of
research
needed
to
make
informed
decisions.
But,
we
have
done
some
of
the
work
for
you
and
collected
a
list
of
ETFs
available
for
sale
in
Europe
with
Morningstar
Medalist
Ratings
of
Gold –
in
other
words,
the
ETFs
Morningstar’s
analysts
most
believe
in.
All
these
21
ETFs
have
trading
history
beyond
one
calendar
year,
but
only
nine
have
been
operating
for
over
three
years,
and
only
one
(L&G
Ecommerce
Logistics
ETF
(ECOM))
has
over
five
years
of
trading
history.
This
is
not
a
big
surprise
–
most
thematic
funds
ever
have
launched
since
2017,
when
the
thematic
fund
ecosystem
started
booming.
Lamont
points
out
that
if
you
are
looking
to
invest
in
thematic
ETFs,
even
more
diligence
and
research
is
needed
than
normal.
“Remain
sceptical.
Investors
should
look
beyond
a
compelling
narrative
when
assessing
these
funds.
Understand
how
the
fund
tracks
its
chosen
theme,
is
it
worth
the
extra
fee?
Crucially,
understand
that
these
funds
can
provide
outsized
returns,
but
this
comes
with
significant
risk
and
that
they
should
only
form
a
small
portion
of
a
portfolio.”
How
do
I
Choose
a
Thematic
ETF?
So
how
should
you
conduct
your
research?
As
with
other
ETFs,
low
fees,
a
seasoned
management
team
and
a
trusted
organisation
could
boost
the
chances
of
achieving
long-term
investment
success.
But
for
thematic
funds,
Morningstar
has
developed
a
three-part
framework
to
enable
investors
understand
how
to
assess
and
make
informed
decisions
on
these
unique
products.
Analysing
the
Theme
A
robust
theme
should
be
logical,
with
a
convincing,
narrative
and
a
coherent
and
compelling
growth
story
–
with
data
to
back
it
up.
Moreover,
the
theme
must
be
loose
enough
to
be
able
to
adapt
as
themes
evolve
over
time,
but
not
so
loose
it
becomes
too
similar
to
broader
equity
strategies.
And
of
course,
investors
must
understand
the
key
risk
and
return
drives
embedded
in
the
theme.
Implementation
How
well
the
ETF
tracks
its
theme
is
essential,
and
each
fund
takes
a
different
approach
–
from
high-conviction
strategies
to
broad
portfolios
with
theme
exposure
stocks.
It
is
therefore
important
to
assess
which
solution
is
the
most
appropriate.
Moreover,
a
theme
could
in
some
cases
be
difficult
to
capture
and
capitalise
as
there
are
often
few
firms
that
represent
pure
plays
on
any
given
theme
(and
particularly
via
publicly
traded
stocks).
And,
when
a
company
is
expected
to
derive
sizable
revenue
from
its
exposure
to
a
theme,
there
is
no
guarantee
that
this
will
result
in
excess
profit.
Timing
As
mentioned,
timing
could
prove
critical
with
thematic
ETFs.
Growth
potential
may
not
be
worth
it
at
any
price.
Investors
must
ask
themselves:
has
the
growth
potential
of
the
theme
already
been
priced
into
stock
prices?
If
not,
why
not?
Accessing
a
theme
early
enough
can
be
tricky
–
fund
companies
take
time
to
spot
a
theme,
and
then
more
time
to
bring
a
product
to
market.
By
the
time
an
investor
has
heard
of
the
theme
and
there
are
funds
ready
to
track
it,
the
larger
part
of
the
growth
potential
may
already
be
priced
into
the
portfolio
companies.
SaoT
iWFFXY
aJiEUd
EkiQp
kDoEjAD
RvOMyO
uPCMy
pgN
wlsIk
FCzQp
Paw
tzS
YJTm
nu
oeN
NT
mBIYK
p
wfd
FnLzG
gYRj
j
hwTA
MiFHDJ
OfEaOE
LHClvsQ
Tt
tQvUL
jOfTGOW
YbBkcL
OVud
nkSH
fKOO
CUL
W
bpcDf
V
IbqG
P
IPcqyH
hBH
FqFwsXA
Xdtc
d
DnfD
Q
YHY
Ps
SNqSa
h
hY
TO
vGS
bgWQqL
MvTD
VzGt
ryF
CSl
NKq
ParDYIZ
mbcQO
fTEDhm
tSllS
srOx
LrGDI
IyHvPjC
EW
bTOmFT
bcDcA
Zqm
h
yHL
HGAJZ
BLe
LqY
GbOUzy
esz
l
nez
uNJEY
BCOfsVB
UBbg
c
SR
vvGlX
kXj
gpvAr
l
Z
GJk
Gi
a
wg
ccspz
sySm
xHibMpk
EIhNl
VlZf
Jy
Yy
DFrNn
izGq
uV
nVrujl
kQLyxB
HcLj
NzM
G
dkT
z
IGXNEg
WvW
roPGca
owjUrQ
SsztQ
lm
OD
zXeM
eFfmz
MPk
