AI and Big Data-Themed Funds Gain Traction in European ETFs

In a striking trend, Artificial Intelligence (AI) and big data-themed exchange-traded funds (ETFs) have taken center stage in the European financial landscape, attracting substantial investments. Data from Morningstar reveals that these specialized funds accumulated a staggering €510 million in net inflows during the first half of the year, marking a dramatic turnaround from €60 million in outflows recorded the previous year. Impressively, these inflows constitute a significant 53 percent of the total €960 million inflow garnered by all thematic ETFs in Europe.

The surge of interest in AI and big data has also extended to open-ended mutual funds, although to a somewhat lesser degree. These funds secured the third position in terms of best-selling themes, accumulating €220 million in investments. Despite these successes, the broader landscape of thematic mutual funds and ETFs saw outflows totaling €510 million, following last year’s inflow of €1.3 billion, according to the data.

Kenneth Lamont, a Senior Manager Research Analyst at Morningstar specializing in passive strategies, pointed out that AI and big data have been the driving forces behind global equity markets in the current year. Lamont highlighted the remarkable mass adoption of generative AI solutions, exemplified by technologies like ChatGPT, which has had a profound impact on the market, benefiting companies tied to this theme.

One noteworthy company riding the AI wave is the US tech giant Nvidia, which has seen its value triple since the beginning of the year, largely due to its dominance in the AI chip market. Lamont stressed that the enthusiasm surrounding this relatively mature theme is evident in the substantial inflows into thematic ETFs this year. However, the future winners in this ever-evolving landscape remain uncertain.

To mitigate the risks associated with picking a single winning company, Lamont suggests that investors consider purchasing a basket of stocks exposed to the AI and big data theme in the form of an ETF.

The top-performing thematic funds in the first half of the year were primarily focused on technological shifts, according to a report by WisdomTree. These themes likely benefited from the rise of generative AI and associated trends.

Despite the impressive growth of AI ETF flows, the overall trend for thematic ETFs has been a decline this year. Ralph Williams, Associate Director at Broadridge, attributes this decline to factors such as rising interest rates and concerns over environmental, social, and governance (ESG) performance and regulatory uncertainty.

Williams also highlighted that the previous success of thematic ETFs was partly due to investors capitalizing on pandemic-related themes, especially in the technology, lifestyle, and medical sectors. Additionally, the surge in ESG investing in 2021 boosted both explicit ESG and non-explicit ESG themes, enhancing the appeal of thematic outlooks.

Interestingly, traditional mutual funds still dominate the European thematic funds market, accounting for 90 percent of total assets. In contrast to the US, where thematic ETFs rule the roost, Europe continues to favor actively managed thematic funds.

In summary, AI and big data-themed funds have attracted substantial investments in European ETFs, reflecting the growing interest in these technologies. However, broader thematic funds have faced challenges, partly due to rising interest rates and ESG concerns. Traditional mutual funds maintain their stronghold in the European thematic funds market, signaling a preference for active management in the region.


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