Investors in thematic funds have experienced significant losses due to poorly timed trades, according to a report by Morningstar Manager Research. Thematic funds, which focus on specific themes such as climate change or artificial intelligence, have seen a surge in popularity in recent years, with their assets under management more than doubling since 2018. However, despite the average return on these funds being 7.3% over a five-year period, investors only saw a meager return of 2.4%. This is in stark contrast to the average annual return of 14% from the S&P 500 during the same period.
Morningstar’s analysts attribute the substantial difference in earnings to investors’ poor market timing. The report highlights that investors traded more frequently in volatile funds, often buying high and selling low, resulting in significant losses. To improve their investment outcomes, analysts suggest adopting a more patient buy-and-hold approach.
The study also reveals that the more targeted the thematic fund, the greater the gap in returns. For example, investors tracking technology funds experienced a gap in returns of 5.5 percentage points, compared to a 1.1 percentage point gap for broad thematic funds. Additionally, investors tended to lose more value in thematic exchange-traded funds (ETFs) due to the funds’ more concentrated holdings and the use of tactical bets, leading to higher volatility.
While funds typically report total returns, the study emphasizes that investor returns provide a more comprehensive measure as they account for cash inflows and outflows. Morningstar’s report urges investors to consider a long-term perspective and avoid making frequent trading decisions that could lead to significant losses.
The findings of this report highlight the importance of patience and a strategic approach when investing in thematic funds. By avoiding hasty trades and adopting a long-term investment strategy, investors can potentially enhance their returns and achieve better overall outcomes.
Frequently Asked Questions (FAQs) Related to the Above News
What are thematic funds?
Thematic funds are investment funds that focus on specific themes, such as climate change or artificial intelligence. They aim to capture opportunities arising from these themes and invest in companies that are related to or impacted by them.
Why have thematic funds become popular?
Thematic funds have gained popularity in recent years due to their potential for higher returns by investing in specific themes that are expected to experience significant growth. Investors are attracted to these funds as they can target specific sectors or trends they believe will perform well.
What returns have investors in thematic funds experienced?
According to the Morningstar Manager Research report, investors in thematic funds have seen a meager return of 2.4% over a five-year period, compared to the average return of 7.3% for these funds. This is significantly lower than the average annual return of 14% from the S&P 500 during the same period.
Why did investors in thematic funds experience lower returns?
Morningstar's report attributes the lower returns to poor market timing by investors. They often traded more frequently in volatile funds, buying high and selling low, resulting in significant losses. The more targeted the thematic fund, the greater the gap in returns, indicating the challenges of timing investments in narrower themes.
What is the suggested approach for investors in thematic funds?
Analysts recommend adopting a patient buy-and-hold approach to improve investment outcomes. They emphasize the importance of avoiding frequent trading decisions and considering a long-term perspective to potentially enhance returns.
Are there specific types of thematic funds that lead to higher losses?
The report highlights that investors tend to lose more value in thematic exchange-traded funds (ETFs) due to their more concentrated holdings and the use of tactical bets, leading to higher volatility. Technology funds, which are narrower in focus, have shown a larger gap in returns compared to broader thematic funds.
How should investors measure their returns in thematic funds?
The report suggests that investors should consider their investor returns, which take into account cash inflows and outflows, as a more comprehensive measure of performance. This is in contrast to the total returns reported by the funds themselves.
What is the key takeaway for investors in thematic funds?
The findings of the Morningstar report highlight the importance of patience and a strategic approach when investing in thematic funds. By avoiding hasty trades and adopting a long-term investment strategy, investors can potentially enhance their returns and achieve better overall outcomes.
Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.
