Thematic Investment Funds in 2024: Larger in Size, Number, and Prominence

In recent years, the global menu of thematic funds has expanded in number and breadth like never before. These funds attempt to harness secular growth themes ranging from artificial intelligence to Generation Z. The result has been a steady supply of ever more niche and complex investment strategies from asset managers and increased demand from investors for greater clarity with respect to how these funds are built and how they might (or might not) fit within their portfolio.

Global assets in thematic funds doubled from USD 269 billion to USD 562 billion over the five years ending in June 2024. During this period, the number of active thematic funds in our global dataset increased to 2,776, up from 1,201.

This growth figure does not capture the dramatic rise and subsequent decline of thematic funds globally during that period, which began with the post-pandemic market boom. Between the first quarter of 2020 and the end of 2021, global thematic fund assets surged more than threefold to a peak of USD 892 billion before plummeting by a third to USD 588 billion over the next nine months.

This article is adapted from the recent report published by Morningstar Manager Research. The Morningstar Global Thematic Funds Landscape 2024 is available to download for free.

Europe held half of the world’s thematic fund assets at the end of June 2024. Despite the United States being home to the largest equity fund market and, until recently, the largest global thematic fund (ARK Innovation ETF), its thematic fund market represents just 22% of the global total.

Most regional thematic markets have experienced a “boom-and-bust” cycle driven by similar macroeconomic factors, with market shares rising and falling largely in sync. However, India, which is included in the rest of the world grouping in the chart below, stands out. Over the past three years, thematic fund assets in India have surged threefold to USD 10 billion while other markets have contracted.

One key regional difference is the preference for actively managed versus indexed strategies. In Europe, 86% of thematic fund assets are in actively managed funds. In contrast, 81% of US thematic fund assets are in indexed strategies.

Broad thematic funds, which invest across many different themes, hold USD 69 billion, making it the most popular theme by assets globally. Among this cohort is the largest thematic fund globally, Pictet-Global Megatrend Select, which targets several global megatrends including demographics and consumer themes.

These funds have proved popular with investors for whom the volatility associated with investing in single themes can be too much. A multi-theme approach is attractive to those who prefer to spread their chips across multiple themes in the hopes of retaining thematic upside while smoothing the ride.

Energy transition had USD 67 billion in assets and was the second-most-popular theme globally at the end of June 2024. The grouping, largely populated by alternative energy funds, got a huge boost in late 2020 when newly elected US President Joe Biden pledged billions of dollars of government support for green infrastructure. Since then, waning enthusiasm for sustainable investments has contributed to falling assets and significant net outflows, particularly in the year ended June 2024.

As of June 30, 2024, there were 344 thematic funds domiciled in the United States, accounting for 22% of all assets in thematic funds globally. In Europe, there were 870 thematic funds domiciled, accounting for more than half (55%) of all assets in thematic funds globally. Canadian thematic funds represent a tiny but growing segment of the Canadian fund universe.

Get more robust commentary and analysis on all three of these regions and the rest of the world by downloading the free report: Morningstar Global Thematic Funds Landscape 2024.

Additional topics covered include:

• A Brief History of Thematic Funds
• Defining the Universe of Thematic Funds
• Most Thematic Funds Display a Growth Tilt

Morningstar’s global taxonomy for thematic funds is based on intentionality rather than holdings. To identify intentionality, we rely on a combination of fund names (a strong indicator of intentionality) and information gleaned from prospectuses, marketing materials, index methodologies (in the case of index funds), and data points available in Morningstar Direct, such as investment objective.

You can scan the complete picture of the global thematic fund market with your own free trial of Morningstar Direct.