Despite a fraction of the scale seen in the US, the Australian market is tapping into major global trends, with promising signs of growth.
Thematic exchange-traded funds (ETF) in Australia have witnessed some $600 million in flows in 2024, with over 40 products now available for local investors to choose from.
This marks a significant rise from previous years, but remains modest compared to the US market, which boasts a vast $80 billion in thematic ETF assets and around 250 products spanning diverse niches, from pet care to K-pop.
But while thematic ETFs in the US account for just 1 per cent of the total ETF industry, Australia’s thematic offerings make up a larger 3 per cent of the local market. This indicates a higher penetration of thematic ETFs among Australian investors, who are eager to engage with global megatrends.
Speaking to InvestorDaily, Global X investment strategist Marc Jocum highlighted that while the US market has seen some closures and outflows in its thematic ETFs, Australia is experiencing a different trend.
“If you look at the US, we’ve actually seen a bit more closures happening within some of the thematic ETFs, which is quite interesting,” he said.
“They’ve actually seen outflows from their thematic ranges, they’ve had multiple months of outflows.”
He attributed this to Australia’s more globally oriented investment strategy, with global equity ETFs making up nearly half of the local market. This preference aligns with Australians’ interest in thematic investments, which offer targeted exposure to specific sectors or trends.
Jocum is optimistic about the future of thematic ETFs in Australia, noting that while the local market lags about five to 10 years behind the US in terms of development, there is significant room for growth and innovation.
“I still see more innovation available, particularly because Aussies love using ETFs for global exposure,” he said.
“And whilst broad vanilla ETF seems to be quite saturated at the moment, there is room for innovation in there, but there’s a lot more room for innovation within thematic ETFs.”
Are thematics in for a boom?
Thematic ETFs saw a boom in 2021, capturing over $2.2 billion and making up 10 per cent of total market flows.
“There were a lot of launches around thematic ETFs … We were in an interest rate environment of zero interest rates, so that kind of fuelled this innovation cycle,” Jocum said.
However, interest waned in 2022 and 2023 due to rising interest rates and inflation. “Last year, thematic ETFs only made up about 1 per cent of the flows, so we’ve almost seen that tripling and a bit of a resurgence in thematic ETFs, which is really encouraging.”
Looking forward, Jocum said he believes that the current macro environment will bode favourably for thematic ETFs.
“Year to date, we’re at about 600 million [in flows], so it makes up about a third of where that peak was,” Jocum said. “I think the resurgence in thematics will continue.”
