🌍 Multi-Thematic Investing in 2024: Which Funds/ETFs Are Winning?
Reviewing fund performance across intersecting megatrends.
Last week, we explored how the Magnificent Seven have shaped market performance and skewed benchmark returns. The key takeaway? Market gains have been highly concentrated, making it increasingly difficult for broad-based strategies to keep up unless they hold these select few names.
Now, we shift our focus to multi-thematic investing—a broader approach that goes beyond the tech giants to capture secular growth trends across multiple industries. With over $400 billion invested in thematic funds and ETFs, how have these strategies performed in 2024?
To kick things off, these topics will be covered today:
A 2024 Performance Deep Dive on broad "Multi-Theme" funds and ETFs.
An Analysis of "Disruptive Innovation" funds and ETFs in 2024.
Insights into "Sustainability/ESG" funds and ETFs' performance in 2024.
I have categorized the 273 funds and ETFs into main clusters, and we will conduct a comprehensive 2024 performance analysis for the entire thematic investing fund and ETF universe.
As you can see in the chart, performance is widely spread, but the multi theme strategies (second from the top) are most homogenous. that makes sense, as they can be regarded as a portfolio of multiple themes, thus redducing overall portfolio volatilty. that’s a good segway to our next topic…What is a mutli theme startegy?
Understanding Multi-Theme Strategies
Multi-theme strategies represent roughly 20% of the $420 billion USD invested in thematic strategies. These strategies offer diversified exposure across multiple megatrends, allowing investors to participate in various structural shifts rather than betting on a single theme.
Asset managers define multi-theme funds as portfolios that integrate multiple secular trends into a single investment strategy, ensuring adaptability as new themes emerge.
The largest fund in this category is Pictet’s Megatrend Fund, which boasts more than $10 billion in assets under management. This fund exemplifies how asset managers seek to capture long-term economic and societal transformations through a diversified mix of thematic investments.
Breaking Down Multi-Theme Strategies: The Three Sub-Clusters
Within multi-theme investing, I have identified three distinct sub-clusters based on the thematic composition and investment philosophy of these funds:
Multi-Theme (Broad): These funds incorporate a diverse mix of themes, including environmental, technological, and societal trends, within a single portfolio. The goal is to provide balanced exposure across various transformative sectors. Pictet’s Megatrend Fund is a prime example, blending multiple structural forces into one cohesive investment approach.
Disruptive Innovation: These strategies prioritize high-growth opportunities with a strong emphasis on disruption driven by technological and business model innovation. These funds tend to have a higher risk-reward profile, often focusing on breakthrough industries such as AI, genomics, and next-generation internet technologies. ARK’s Innovation Fund falls within this category, targeting companies that lead in disruptive advancements.
Sustainability/ESG: Unlike funds that solely focus on megatrends, these strategies emphasize investing in companies that lead in environmental, social, and governance (ESG) principles. This includes firms with ambitious net-zero goals, best-in-class corporate governance practices, and strong commitments to minimizing gender pay gaps. Rather than solely capitalizing on thematic tailwinds, these funds prioritize companies that align with ethical and sustainable business practices.
Performance Analysis: Assessing Thematic Investment Returns
Last week, we established a 10% performance hurdle as a benchmark to compensate for the risks associated with holding a portfolio of thematic stocks.
(Here is a complete guide to box plots)
Examining the box plot Flourish graphic, three key observations stand out:
Sustainability/ESG Funds: The return distribution is relatively narrow, suggesting lower volatility. However, the median return is the weakest among all sub-clusters, indicating that while these funds provide stability, they have struggled to deliver strong upside performance.
Disruptive Innovation Funds: These high-growth strategies exhibit the highest volatility, which is clearly visible in the distribution of returns. However, at least in 2024, this risk paid off, as most funds in this category outperformed the 10% hurdle.
Multi-Theme Funds: This category appears more homogeneous, with fewer extreme outliers. However, the overall performance was weaker, with the majority of funds failing to surpass the 10% performance hurdle.
Disclaimer
This newsletter is for informational purposes only and should not be considered investment advice. All investments carry risk, and past performance is not indicative of future results. Please consult a financial advisor for personalized recommendations.
Performance Overview: Identifying the Top Performers
For this analysis, we focus on the blockbuster funds, meaning those with over $1 billion in assets under management. These strategies are not only commercially relevant but also act as a quality filter, ensuring we analyze concepts that matter most to investors.
The standout performers in 2024 were Fidelity New Millennium, CPR Invest Disruptive Opportunities, and Swisscanto Sustainable. Beyond their impressive performance, they share a common driver—technology exposure. It’s no surprise that portfolio allocation plays a crucial role in returns, and in this case, all three funds held significant positions in Nvidia. As we discussed in last week’s analysis of the Magnificent 7, Nvidia had an extraordinary year, delivering a staggering 170% return in 2024, which was a key contributor to the success of these funds.
Lessons Learned from the Underperformers
Rather than naming specific laggards, let’s identify common factors that led to underperformance:
Tech exposure alone wasn’t enough – Simply holding tech stocks did not guarantee success. Stock selection was crucial, and in hindsight, some funds failed to capture the right winners.
Semiconductor exposure without Nvidia – Some funds had semiconductor allocations but focused on segments under pressure, such as semiconductor equipment, which struggled in 2024.
Unproven business models – Funds with exposure to highly valued, consumer-facing tech startups saw declines as valuation corrections took hold.
Medical innovation bets that fell short – Several funds held positions in biotech and medical innovation stocks that failed to meet expectations, weighing on overall returns.
Key Takeaways and Final Thoughts
Technology exposure was critical, but success depended on picking the right stocks. We’ll explore stock selection in greater depth in future discussions.
Nvidia was a defining performance driver in 2024, significantly boosting top-performing funds.
Unproven business models and struggling semiconductor segments, such as semiconductor equipment were major drags on underperforming strategies.
Sounds like it’s mostly about tech, right? That’s exactly what we’ll cover next week. Stay tuned!
Publication Timeline Ahead
We have three exciting weeks ahead of us!
Here’s the schedule:
📊 2024 Market Review: The Big Picture Before Diving Deeper – Two weeks ago
💡 The Magnificent 7 Effect: How It Distorts Performance & What Defines ‘Good’ Returns – Last week
🌍 Multi-Thematic Investing in 2024: Which Funds/ETFs Are Winning? – TODAY!
🚀 Tech Funds/ETFs in 2024: Capturing Innovation or Falling Behind? - March 13
🌱 Sustainable Investing in 2024: How Funds/ETFs Are Performing in the Green Transition – March 20
🔄 Investing in Societal Change: How Thematic Funds/ETFs Are Adapting in 2024 – March 27
This deep dive will equip you with a comprehensive understanding of the stock market and thematic investment universes, enabling you to make informed decisions when selecting funds or ETFs for your portfolio.
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