Morningstar - Q1 2023 - 32
Spotlight: Thematic Investing
-20
1996
EXHIBIT 3
be appropriate for this purpose. Other more
targeted funds are better suited to a tactical role
in an investment portfolio.
Many of the thematic ETFs offer highly
concentrated portfolios of stocks, which can
appear excessively risky compared with
broad market funds. They can, however, look like
the less risky option when compared with
single-stock investments, and this may be their
most compelling use case.
Ultimately, any thematic fund added to a portfolio
must be understood in the context of that portfolio.
All the exposures should be well understood
and managed through time.
While understanding these exposures will help
illuminate some of the drivers of risk and
return, investors may need to look further to get
the full picture. For example, a cannabisthemed
ETF may have a certain investment profile,
but one of the major drivers of returns has
been regulatory changes, which is not easily
captured in data points alone.
A clear understanding of how a thematic fund
could alter a portfolio's risk/return dynamics is
important. Even if a highly volatile thematic fund
exhibits risk and return drivers that are
uncorrelated with those of the broader portfolio,
adding even a small allocation may boost
long-term risk-adjusted returns. K
Kenneth Lamont, CAIA, is a senior research analyst at
Morningstar Research Services LLC.
Dimitar Boyadzhiev is a senior research analyst at
Morningstar Research Services LLC.
Jackie Choy, CFA, is director of ETF research at
Morningstar Asia.
Risk and Return Thematic funds tend to be riskier than the broader market,
but many also have higher returns.
30%
2001
2006
2011
2016
2022
15
Morningstar
Global Markets
-15
-30
0%
Risk Standard Deviation
10
Source: Morningstar Direct. Data as of Sept. 30, 2022.
20
30
40
50
60
EXHIBIT 4
Benchmarking Thematic Funds Funds can be mapped against a composite and
other relevant indexes to better gauge performance.
3%
Morningstar
2
Developed Markets
Technology Index
1.32
Morningstar
1
Global Markets Index
0.47
Global X FinTech ETF
0.42
Fintech Theme
Composite
0.19
-1
01/2017
01/2019
Source: Morningstar Direct. Data as of Sept. 30, 2022.
01/2021
10/2022
32
Morningstar Q1 2023
Cumulative Return
Return
Number of Funds
https://www.morningstar.com/authors/1780/kenneth-lamont
https://www.morningstar.com/authors/1684/jackie-choy
Morningstar - Q1 2023
Table of Contents for the Digital Edition of Morningstar - Q1 2023
Contents
Morningstar - Q1 2023 - Cover1
Morningstar - Q1 2023 - Cover2
Morningstar - Q1 2023 - Contents
Morningstar - Q1 2023 - 2
Morningstar - Q1 2023 - 3
Morningstar - Q1 2023 - 4
Morningstar - Q1 2023 - 5
Morningstar - Q1 2023 - 6
Morningstar - Q1 2023 - 7
Morningstar - Q1 2023 - 8
Morningstar - Q1 2023 - 9
Morningstar - Q1 2023 - 10
Morningstar - Q1 2023 - 11
Morningstar - Q1 2023 - 12
Morningstar - Q1 2023 - 13
Morningstar - Q1 2023 - 14
Morningstar - Q1 2023 - 15
Morningstar - Q1 2023 - 16
Morningstar - Q1 2023 - 17
Morningstar - Q1 2023 - 18
Morningstar - Q1 2023 - 19
Morningstar - Q1 2023 - 20
Morningstar - Q1 2023 - 21
Morningstar - Q1 2023 - 22
Morningstar - Q1 2023 - 23
Morningstar - Q1 2023 - 24
Morningstar - Q1 2023 - 25
Morningstar - Q1 2023 - 26
Morningstar - Q1 2023 - 27
Morningstar - Q1 2023 - 28
Morningstar - Q1 2023 - 29
Morningstar - Q1 2023 - 30
Morningstar - Q1 2023 - 31
Morningstar - Q1 2023 - 32
Morningstar - Q1 2023 - 33
Morningstar - Q1 2023 - 34
Morningstar - Q1 2023 - 35
Morningstar - Q1 2023 - 36
Morningstar - Q1 2023 - 37
Morningstar - Q1 2023 - 38
Morningstar - Q1 2023 - 39
Morningstar - Q1 2023 - 40
Morningstar - Q1 2023 - 41
Morningstar - Q1 2023 - 42
Morningstar - Q1 2023 - 43
Morningstar - Q1 2023 - 44
Morningstar - Q1 2023 - 45
Morningstar - Q1 2023 - 46
Morningstar - Q1 2023 - 47
Morningstar - Q1 2023 - 48
Morningstar - Q1 2023 - 49
Morningstar - Q1 2023 - 50
Morningstar - Q1 2023 - 51
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Morningstar - Q1 2023 - 75
Morningstar - Q1 2023 - 76
Morningstar - Q1 2023 - 77
Morningstar - Q1 2023 - 78
Morningstar - Q1 2023 - 79
Morningstar - Q1 2023 - 80
Morningstar - Q1 2023 - Cover3
Morningstar - Q1 2023 - Cover4
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