Morningstar - Q1 2023 - 5

Letter From the Editor
Yes, There's a Thematic Fund for That
Jerry Kerns
If there's an investing theme out there, most likely
there's a mutual fund or exchange-traded fund
offering investors exposure to it. No idea, it seems,
can be too nichey or gimmicky. Investors can
put their money into well-known themes such as
e-commerce, artificial intelligence, or the
blockchain. Or if you think there's money to be
made if Korea unifies, there's a fund for that.
Think millennials present an investing opportunity?
No? How about a fund that plays off the baby
boomer demographic?
Thematic funds have proved popular with investors,
and the fund industry has taken notice. Asset
managers around the globe have ramped up the
supply of these funds, especially since the
COVID-19 pandemic (which, by the way, is also
a theme). As more of these funds came to
market-some delivering eye-popping returns,
others fizzling out-Morningstar's fund analysts
sought to get a handle on this unwieldy
segment of the fund universe. The result of their
efforts is a new taxonomy that better categorizes
the funds. This framework makes it possible
for analysts to identify key global trends in the
space and has proved invaluable as the number of
thematic fund launches has exploded over the
past few years. Analysts Kenneth Lamont, Dimitar
Boyadzhiev, and Jackie Choy were involved in
the project. In this issue's Spotlight section, they
give an overview of what they discovered
about thematic funds and address a few crucial
questions investors need to ask before investing
in these often-volatile strategies ( " Investors
Love Themes, but They're Not Always a Breeze, "
Page 27.)
No doubt 2022 was a uniquely rough year for
investors. By and large, there was no place to hide.
Not only did equities suffer double-digit losses,
but so did bonds-an unprecedented occurrence
in U.S. market history. Amid the uncertainty,
many investors may have chosen to grit their teeth
and avoid looking at their statements. But now
morningstar.com/products/magazine
5
lower equity valuations offer a buying opportunity,
and easing inflation concerns may mean a
smoother bond market. Maybe 2023 will be better?
To get a handle on the current state of the
markets and glean some guidance for the future,
we assembled three Morningstar investing
experts for this issue's Morningstar Conversation
( " Where Do We Go From Here? " Page 56).
Moderator Tom Lauricella, chief markets editor
at Morningstar, leads the discussion with Preston
Caldwell, chief U.S. economist at Morningstar
Research Services LLC; Russel Kinnel, director of
manager research for Morningstar Research
Services LLC; and Marta Norton, chief investment
officer, Americas, at Morningstar Investment
Management LLC. They see opportunities ahead,
but also say that the market still presents
challenges. Buckle up.
One sector that promises growth opportunities
is utilities-yes, utilities. Managing editor
Laura Lallos discusses the once staid sector with
equity analysts Travis Miller and Andrew
Bischof ( " Electrifying Opportunities, " Page 66).
Utilities outperformed the market by double
digits in 2022, and Miller and Bischof paint
a bright future. The sector took a hit last fall as
rising interest rates caused income-seeking
investors to go elsewhere, which lowered stock
valuations. Utilities are also driving the
transition to clean energy, and we're at the
beginning stages of this shift. " This is the best
utilities growth environment that we've
seen in decades, " Miller says. As you'll find in this
issue, it's not all doom and gloom for investors.
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Morningstar - Q1 2023

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