Although only a fraction of that seen in the United States, the Australian market is tapping into key global trends, with promising signs of growth.
Thematic exchange-traded funds (ETFs) in Australia have seen flows of some $600 million in 2024, with more than 40 products now available for local investors to choose from.
This is a significant increase from previous years, but still modest compared to the US market, which has $80 billion in thematic ETF assets and around 250 products covering various niches, from pet care to K-pop.
But while thematic ETFs in the United States represent just 1 percent of the total ETF sector, Australia’s thematic offerings represent 3 percent of the local market. This indicates higher penetration of thematic ETFs among Australian investors, keen to engage with global megatrends.
“If you look at the U.S., we’ve actually seen a little more closures within some thematic ETFs, which is quite interesting,” he said.
“They actually saw capital outflows in their thematic lines, they had several months of capital outflows.”
He attributed this to Australia’s more globally oriented investment strategy, with global equity ETFs accounting for almost half of the local market. This preference aligns with Australians’ interest in thematic investing, which provides targeted exposure to specific sectors or trends.
Jocum is optimistic about the future of thematic ETFs in Australia, noting that although the local market lags behind the US by around five to ten years in terms of development, there is significant room for growth and innovation.
“I see even more innovation available, particularly because Australians love using ETFs for global exposure,” he said.
“And even though vanilla ETFs seem to be quite saturated at the moment, there is room for innovation, but there is much more room for innovation within thematic ETFs.”
Are the themes booming?
Thematic ETFs have boomed in 2021, capturing over $2.2 billion and accounting for 10% of total market flows.
“There were a lot of launches around thematic ETFs… We were in a zero interest rate environment, which kind of fueled this cycle of innovation,” Jocum said.
However, interest has decreased in 2022 and 2023 due to rising interest rates and inflation. “Last year, thematic ETFs only made up about 1 percent of flows, so we’ve almost seen that tripling and a slight resurgence of thematic ETFs, which is really encouraging.”
Looking ahead, Jocum said he believes the current macroeconomic environment will bode well for thematic ETFs.
“Since the start of the year, we are at around 600 million [in flows]so that’s about a third of where that peak was,” Jocum said. “I think the resurgence of themes will continue.”
