Major market events from COVID-19 to the ChatGPT launch have created wide performance gaps among thematic funds, revealing which products deliver genuine exposure versus marketing narratives, according to a new FactSet analysis.
The research examines how thematic funds have responded to market shocks since 2020, offering portfolio managers a framework for anticipating risk and opportunity during disruptive events, according to the report by Stephen Malinak, published Wednesday. The analysis is the second in a three-part series on thematic investing.
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Event studies reveal pronounced differences even among funds tracking the same theme, according to FactSet. The Covid-19 crash in early 2020 led to divergent outcomes within the genomics category, which focuses on companies working with DNA and gene research, with the ARK Genomic Revolution ETF (ARKG ) rising to 2.8 times its pre-crash peak while other funds in the segment showed more moderate gains.
Policy events also shape thematic fund performance in predictable ways, according to the report. Before the Clean Energy Bill passage in 2022, clean energy funds grew in the months leading up to the vote, followed by a reversal soon after, a pattern consistent with market anticipation.
In contrast, geopolitical shocks often catch markets off guard, according to FactSet. Following the Ukraine invasion in 2022, a rapid increase in clean energy themes emerged as investors repositioned portfolios. Uranium mining funds, which hold companies that extract the metal used in nuclear power plants, benefited from the geopolitical shock.
Thematic Fund Divergence During Bank Crisis
Banking sector stress exposed divergence between fintech and blockchain funds, according to the analysis. During the Silicon Valley Bank failure in 2023, fintech ETFs underperformed the Nasdaq, while blockchain and digital economy ETFs outperformed, with some doubling in value over four months.
Technology breakthroughs create similar gaps across innovation themes, according to the report. After the ChatGPT launch in 2022, AI and robotics funds performed well, but older themes like 3D printing did not share in the gains despite being part of the broader innovation category.
Not all events follow the same time profile, according to FactSet. Sudden shocks such as the COVID crash or tariff changes tend to resolve quickly with rapid market reversals, while prolonged drawdowns like the multi-year bond market decline starting in 2021 require different protection strategies.
Investment professionals can enhance their approach to thematic portfolios by incorporating event analysis to assess risk and using granular data to clarify exposures at the segment and regional level, according to the report.
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