Investors in thematic funds often make costly mistakes by buying high and selling low
- Investors in thematic funds often have poor timing and lose out on returns
- Investors in thematic funds lost over two thirds of total returns over a five-year period
- Investors tend to buy high and sell low, exacerbating the return gap
- Thematic funds have become popular during the pandemic, but their volatile nature can lead to poor investor decisions
- Certain themes, such as energy transition, have larger return gaps than others
A new report from Morningstar reveals that investors in thematic funds have poor timing and often lose out on returns. Over a five-year period, the typical investor lost more than two thirds of total returns due to unfortunate timing. While thematic funds had an average annualized return of 7.3%, investors only earned a 2.4% return when accounting for cash inflows and outflows. This is because investors tend to buy high and sell low, falling into the behavioral trap of poor market timing. Thematic funds, which focus on specific niches within sectors, have become popular during the pandemic but come with significant volatility. Morningstar found that more volatile funds led to more frequent trading and a tendency for investors to make poor decisions. The narrower the focus of the fund, the larger the gap between total returns and investor returns. Thematic ETFs also had wider return gaps compared to thematic mutual funds. Energy transition funds had the largest return gap at 11.9%, followed by future mobility and multiple technology themes. The lesson for investors is clear: poor behavior can hinder performance and be costly in the long run.
Factuality Level: 8
Factuality Justification: The article provides information from a report by Morningstar that shows how investor behavior affects returns in thematic funds. It includes specific data on the average returns and investor returns for different themes. The information is supported by quotes from Kenneth Lamont, a senior manager research analyst at Morningstar. The article does not contain any irrelevant or misleading information, sensationalism, redundancy, or opinion masquerading as fact. It provides accurate and objective information based on the report’s findings.
Noise Level: 3
Noise Justification: The article provides relevant information about investor behavior and the performance of thematic funds. It includes data and examples to support its claims. However, there is some filler content at the beginning of the article and the conclusion is quite brief.
Financial Relevance: Yes
Financial Markets Impacted: The article discusses investor behavior and the impact it has on thematic funds. This can have implications for financial markets, particularly for ETF sponsors such as BlackRock’s iShares, Invesco, and Fidelity Investments.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article focuses on investor behavior and its impact on thematic funds, highlighting the potential financial implications for investors and ETF sponsors. However, there is no mention of any extreme events or their impact.
Public Companies: BlackRock (BLK), Invesco (IVZ), Fidelity Investments (undefined)
Key People: Kenneth Lamont (Senior Manager Research Analyst at Morningstar)
Reported publicly:
www.marketwatch.com 
