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Australia's 'hyper saturated' thematic ETP landscape tipped to compress further

 — 1 minute read

Investors are expected to begin to redeem ‘questionable’ thematic strategies as they lose their shine.

Following the release of the latest ETF figures from the ASX, VanEck has suggested that the positive momentum in tech proxy and niche thematics has now reversed.

“The Australian thematic ETP landscape is now hyper saturated with an increasing number of strategies crossing over constituents,” said VanEck CEO and MD Asia Pacific Arian Neiron.

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“Over the last two years, the number of fund managers has proliferated, with some offering esoteric thematic ETFs which have leveraged off the excess liquidity and ultra-low interest environment to pique retail investor appetites. That appetite has abated.”

This reversal saw net flows for the 31 thematic ETFs on the ASX fall to $225 million in the first four months of 2022, compared to $746 million in the corresponding period a year earlier.

A total of 12 new thematic ETFs have been listed in the past year, but Mr Neiron said that these have struggled to gain traction and collectively took in just $12.4 million.

“Our expectation is that the thematic ETF segment of the Australian ETP industry will compress further and that investors will start to redeem ‘questionable’ thematic strategies as their sparkles loses shine,” said Mr Neiron.

“In contrast, those thematic ETFs that invest in genuine structural trends such as the movement to clean energy away from fossil fuels will continue to be the preferred thematic exposure.”

So far this year, the BetaShares Crypto Innovators ETF has been the worst performing thematic ETF with a fall of 42.47 per cent followed by the Cosmos Global Digital Miners Access ETF (-38.29 per cent), the ETFS S&P Biotech ETF (-32.64 per cent) and the BetaShares Global Robotics and AI ETF (-31.60 per cent).

VanEck noted that the funds under management for thematic ETFs reached $5.7 billion in April, an increase of 32.6 per cent on the previous corresponding period.

The market cap of Australian ETFs overall sat at $133.5 billion as of last month following net flows of $1.2 billion.

“The industry continues to grow notwithstanding the heightened volatility and downturn experienced in share markets as the rotation from growth companies such as technology firms to value continues,” Mr Neiron said.

“In this environment, we stress the importance of fundamentals and for equity investors to determine that their portfolios are exposed to high free cash flow, strong balance sheets and companies with sustainable earnings in an environment where they can either absorb inflationary pressures or pass them on to their customers without curbing demand.”

Australia's 'hyper saturated' thematic ETP landscape tipped to compress further

Investors are expected to begin to redeem ‘questionable’ thematic strategies as they lose their shine.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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