In Focus: Megatrends  

Bad returns hurt passive ETFs in Q1

Bad returns hurt passive ETFs in Q1

Thematic ETFs have seen their biggest decline in assets globally, as assets plunged 6.9 per cent in Q1 driven by negative investment returns.

The decline was driven by large technology themes such as connectivity, which saw a 10 per cent drop in AUM, health tech (-11 per cent) and robotics & automation (-18 per cent).  

The only technology-related theme that recorded positive asset growth in Q1 2022 was blockchain at 5.4 per cent, according to Qontigo's quarterly ETF intelligence insights.

Overall market decline of 9.5 per cent has hurt many EFT segments, including flagship ETFs, which recorded the second largest decline in assets globally (-3.2 per cent), and factor ETFs (-1.6 per cent).

However, sector and ESG ETF assets rose 2 per cent and 0.4 per cent, respectively, despite experiencing a slowdown in Q1.

ESG was the fastest growing segment in 2021 at 113 per cent, but assets dropped after negative investment returns of 5 per cent, while net new assets contributed 5.4 per cent to Aum growth.

Melissa Brown, global head of applied research at global index and analytics provider Qontigo, said: "We entered the year on the back of an already uncertain inflationary outlook weighing on investor sentiment, which was only exacerbated by the conflict that began to unfold in Ukraine throughout the first quarter of 2022.

"Markets responded, broadly declining in line with negative sentiment.

"Many of the companies that had benefitted from the trends coming out of the pandemic saw a reversal of fortunes, evident in the decline that we have seen in the performance of Thematic ETFs and those driven by technology themes."

 

Inflows up

However, the funds still attracted inflows across all segments. 

The strategy segment (including leveraged products and volatility indices) saw the highest relative increase in new assets of 11 per cent, with global assets standing at €110.4bn (£93.5bn) at the end of the quarter.

The ESG ETF segment recorded the second highest relative increase, at 5.4 per cent net new asset growth. Within this segment Article 9 ETFs saw the largest growth in Aum (10.6 per cent).

When it came to new product launches ESG and thematic ETFs dominated.

There were 153 newly launched ETFs globally in Q1 2022, with more than a quarter (26 per cent) of these in the ESG segment.

 

This was closely followed by the thematic ETF segment, which accounted for 20 per cent of all new product launches, despite declines seen in assets over the quarter.

Axel Lomholt, chief product officer, Indices & Benchmarks for Qontigo, said: "The level of new ETF launches and flows into these products demonstrates the resilience of the ETF market and its ability to respond to investor needs.

"The continued trend towards ESG ETFs shows continued investor appetite for sustainable and ESG-aligned investments.

"In the Americas, which remains the largest region for ETF assets but has generally been slower to adopt ESG aligned investments, appetite for ESG ETFs was particularly strong.