EW: We have seen flows into active and passive funds, and exchange-traded funds that could be described as thematic.
Dependent on how niche the theme is will determine the part it should play in your portfolio. A well-diversified, and therefore robust, portfolio should have broad exposure to geographies and asset classes.
Thematic funds can exclude large parts of the market, and therefore have very differentiated and potentially volatile returns. In general, the best course of action is to use thematic funds as a satellite holding in a portfolio, adding a tilt to a broad-based approach.
FTA: How has the volatility caused by recent, and ongoing, geopolitical events influenced passive investor behaviour, if at all?
EW: When Russia first invaded Ukraine, we saw investors look to add safety and ballast to their portfolios in the form of multi-asset strategies and gold ETFs.
As the war impacted commodity prices, we saw flows into commodity ETFs; both those that track oil and gas prices, and agricultural baskets.
FTA: There has been a well-documented race to the bottom on fees for passive investing. Is there a sense that investors are willing to pay more to invest in the strategies they believe in, ie clean energy and so on?
EW: Thematic and strategy beta ETFs do tend to be more expensive than broad trackers and ETFs following the major indices.
carmen.reichman@ft.com
