New thematic funds are struggling to attract significant client inflows, despite booming demand for thematic products in general, new research suggests.
Thematic investing is the fastest-growing equity fund segment, with assets under management having grown 200% over the past three years to reach €300 billion ($300 billion) at the end of June 2022, Broadridge data show.
But only 24% of thematic equity funds launched over the past five years have gathered assets of $300 million or more, Broadridge's benchmark for a commercially successful launch.
"There is a hit-and-miss quality to thematic launches – success relies on picking the right theme at the right time," said Angus McWhirter, insights consultant at Broadridge Financial Solutions.
While there is no agreed definition of what a successful launch is in terms of assets, Broadridge says $300 million is a "solid conservative definition of success".
Timing of thematic fund launches plays an important role in determining success, according to the researchers.
"Covid-19 caused significant flows into medical innovation funds, which then tailed off after the success of the vaccine rollout became clear. During this time these funds also performed well," McWhirter said.
"Equally, flows into agri-focused funds have been strong this year despite the wider market rout as it is an industry less susceptible to inflationary shocks, coupled with fears of a war-driven food crisis."
Launching a fund prior to these "bursts of activity" would have increased the chances of getting a fund "off the ground," he said.
"Conversely, launching a tech thematic fund at the beginning of this year has proven to be bad timing due to the toppy tech market/market rout and this is reflected in the poor flows into disruptive tech funds," he adds.
The researchers also find that strong brand perception is a "key determinant of success" for thematic equity funds.
Pictet, which is assessed to have the strongest brand for thematic products among fund selectors, has 15 funds in the space and 12 of them had assets of more $1 billion in June 2022, according to Broadridge.
By contrast, Global X, "a less established name and brand in the European market", has launched 24 thematic ETFs over the past three years and gathered only $120 million in assets.
"A rising tide, in other words, hasn’t lifted all boats," said McWhirter.
More than 260 thematic fund launches have failed to reach $300 million in Broadridge's analysis, with only 83 funds meeting that level.
Despite this, the "resilience" of thematic strategies during the market rout this year suggests that thematic investing is not a "passing fad," McWhirter said.
Meanwhile the proportion of non-thematic equity funds deemed to be a commercial success over the same five-year period is smaller than for thematic funds.
But McWhirter said that he would expect the average thematic fund to attract more flows "given that it is such a growth market compared to traditional core segments."
He added that there have been "a lot" of thematic launches compared with traditional products and "newer funds tend to attract more flows."