2023 Thematic ETF Investing Overview: A Tale of Contrasts and Emerging Trends

Meta (NASDAQ:) Description: Unpack 2023’s thematic investing landscape, exploring the peaks of cryptocurrency and AI, the resurgence of nuclear energy, and the challenges faced by clean energy sectors.

The 2024 Trackinsight Global ETF Survey Report is packed with valuable insights into the global trends shaping ETF markets. In this article, we delve into the latest trends in thematic ETFs, with a particular focus on the U.S., offering a closer look at what the report reveals.

Global Thematic Landscape: A Mixed Bag

After experiencing nearly $100 billion in global inflows in 2021, the allure of thematic investing has begun to wane amid two tumultuous years of rising interest rates and deteriorating macroeconomic conditions. This shift rendered many thematic ETFs unattractive, leading investors to pivot towards more favorable opportunities, such as fixed-income investments.

Thematic ETFs, while not at their zenith, still boast a significant $260 billion in AUM globally, albeit a slight retreat from their 2021 peak of $280 billion. Only $6.7 billion in new investments flowed in, with European investors spearheading the charge, notably in climate change-themed investments.

Themes of the Year in the U.S.: Cryptocurrency, AI, and Nuclear Energy

The U.S. thematic investment scene tells a different story of caution and withdrawal, with $2.4 billion fleeing the scene over the last two years. Despite the overarching hesitancy, certain themes not only survived but thrived:

Cryptocurrency

Surging with a remarkable +147% return, cryptocurrency emerged as the year’s standout performer, fueled by enthusiastic anticipation for the SEC’s approval of spot bitcoin ETFs. U.S. investors eagerly allocated over $700 million into Crypto-linked ETFs, with the lion’s share going to the ProShares Strategy ETF ($BITO).

AI, Robotics, and Automation

This growing interest can be attributed to the significant advancements made by OpenAI in November 2022, including the groundbreaking launch of their advanced Large Language Model (LLM) and ChatGPT.

These innovations have ignited a wave of new developments and intensified competition among major technology firms like Microsoft (NASDAQ:), Google (NASDAQ:) and other beneficiaries, underscoring the potential and significance of AI across various sectors. This theme attracted over $2.3 billion and ended the year with solid double-digit returns.

Nuclear Energy

Amidst the global energy crisis, nuclear energy has emerged as a standout, attracting nearly $1 billion in new investments. The surge in interest in this theme can largely be attributed to the promising prospects it offers, particularly in light of the energy crisis following Russia’s invasion of Ukraine.

The prevailing sentiment in the global energy market is increasingly favorable to nuclear power, evident in the decision to restart and expand nuclear power plants worldwide.

Countries such as Japan, China, India, and Turkey have announced plans to construct 63 new reactors, demonstrating a significant commitment to nuclear energy.

This positive outlook was further reinforced at the COP28 summit, where a coalition of 24 nations endorsed a Ministerial Declaration advocating for a threefold increase in global nuclear energy capacity by 2050. Meanwhile, uranium prices have surged to 15-year highs, driven by ongoing supply constraints.

These developments, coupled with the overarching goals of decarbonization and digitalization, have created a favorable landscape for the uranium market. This optimistic outlook bodes well for both the industry and related ETFs.

Facing Headwinds

The Struggle of Clean Energy Themes

Conversely, clean energy themes faced harsh realities, with the sector witnessing over $1.7 billion in outflows and a -17% performance hit. The sector’s heavy reliance on leverage became its Achilles’ heel, as rising interest rates upended financing costs and profitability.

The Cannabis Conundrum

Despite a battered performance, the allure of cannabis investment remained undimmed, drawing $240 million in new inflows against a backdrop of -15% returns. The fleeting optimism in August 2023, spurred by potential federal legalization discussions, highlighted the volatile journey of cannabis stocks amidst financial and competitive pressures.

The full picture

The thematic investing landscape of 2023 was a realm of contrasts, with remarkable successes in some sectors shadowed by stark challenges in others. As investors navigated through the complexities of market dynamics, emerging themes like cryptocurrency, AI, and nuclear energy shone brightly, offering glimpses of resilience and potential growth amidst uncertainty.

Interested in learning more about Global ETF trends? Download Trackinsight’s 2024 Global ETF Survey Report titled “Unlock 50+ Charts of Worldwide ETF Trends” to gain access to valuable insights on the global ETF universe, from active and fixed income strategies to the latest trends in crypto, ESG and thematic investing.