Thematic ETFs: Overvaluation, volatility and high losses - how financial experts assess performance and which alternatives they recommend.

Thematic ETFs: Overvaluation, volatility and high losses - how financial experts assess performance and which alternatives they recommend.

According to a report by www.finanzen.net,

Numerous thematic ETFs have been launched in recent years, but they often have disappointing performance. According to a study by Morningstar, analysts warn against thematic funds and emphasize that broad-based ETFs often offer better performance. Thematic funds focus on socially and politically relevant topics, promise high returns and attract investors. However, the investor returns for thematic funds often lead to worse results than for traditional equity funds.

One reason for the poor performance of thematic ETFs is the volatility of the markets covered. The funds initially generate high returns, investors then invest, but the price potential is limited, which leads to a crash. This development is reflected in the investor return, which is often significantly worse for thematic funds than for non-thematically investing equity funds.

The return gap, i.e. the discrepancy between the time-weighted return and the investor return, is particularly large for thematic ETFs. Over the last five years, the return gap for thematic funds was 4.9 percent, while for traditional equity funds it was just 0.5 percent. Therefore, investors who tend to engage in numerous trading activities suffer significant losses. Particularly hard hit are funds with higher volatility and narrower focus, such as green tech ETFs, which create a devastating investor experience.

According to the Morningstar study, non-thematic ETFs perform better by offering investors an investor return of almost nine percent and a time-weighted return of just over eight percent. In comparison, thematically tailored funds performed worse. The study's findings underscore the fact that traditional, broad-based ETFs represent a more promising option for investors than specific thematic ETFs.