"What informs the actual companies that go into the portfolio is actual fundamental research, and they are certainly looking at offices with the specific caveat of [if] they only see the all traditional approach to doing an office that is not going to be a part of the portfolio.”
How to navigate risks
Thematic funds offer investors the opportunity to invest in the new economy real estate story. But there are risks, as while they can deliver financially, especially in the short-term, a lot of the time these types of funds also fail, says Ben Johnson, director of global ETF research at Morningstar.
A recent report from Morningstar, titled Global Thematic Funds Landscape 2022, found more than a half of the thematic funds in Morningstar’s global universe both survived and outperformed the Morningstar Global Markets Index over the three years to the end of 2021.
However, their success rate dropped to just one in 10 over the trailing 15-year period. More than three-fourths of the thematic funds available to investors at the onset of that period have since closed.
Johnson says: "The majority of them over a long period of time are closed, ultimately liquidated, and a tiny minority of them manage to both live across multiple market cycles and actually deliver performance that is better than what one would get from simply owning a broadly diversified tracker fund."
All of the above-mentioned ETFs currently trade at a loss, however their managers put this down to the current economic environment, not the failure of the theme in the long run.
Edmondson says: "Online retailers have not been immune from inflationary pressures and supply chain issues. That has been evident during this quarter’s earnings seasons, where sales revenues have been strong, but earnings (due to higher costs) have missed.
"That being said, the long-term thesis is still intact for the disruption of retail that shoppers like the added convenience, selection, and rapid delivery options afforded by online retail as opposed to the in-person shopping experience."
Versace says: "All the data points to consumers willing to pay premium prices for cleaner living products.
"Given, however, it’s a new strategy, much the way cyclical companies that talk structural margin expansion need to deliver over the course of an economic expansion and contraction, we will need to see Cleaner Living go deliver revenue share gains at the expense of overall consumer discretionary amid inflation/consumer spending concerns."
Picking the right fund
Johnson believes there is a place for these funds in an investor’s portfolio. He says: “There are different roles that these funds could play and in many cases they might be a suitable substitute for taking positions in individual securities.
