“Sometimes as quickly as the money comes into those products, it leaves as quickly when the theme runs its time or is no longer relevant,” Steve Dunn, head of ETFs at Aberdeen Standard Investments, told Bloomberg. “Testing that lightning-in-a-bottle – that’s a hard proposition.”
Furthermore, these thematic ETFs typically cost more than your typical passive index-based ETFs. According to Bloomberg Intelligence, the average cost of thematic ETFs have a 0.58% expense ratio. In contrast, the cheapest beta-index ETF comes with a 0.03% expense ratio.
Nevertheless, there are thematic success stories. For example, the ETFMG Alternative Harvest ETF (NYSEArca: MJ), which follows cannabis-related companies, has attracted close to $640 million in assets under management as the fund captured the recent marijuana investment craze.
“You’ll also see a lot more of them launched and a lot more of them closed because of timing or for whatever reasons that theme didn’t resonate,” Eric Balchunas, an ETF analyst at Bloomberg Intelligence, said.
For more information on the ETF industry, visit our ETF Performance Reports category.