Thematic ETFs could become a $300 billion category within five years despite being dismissed as a gimmick just a few years ago, says Bloomberg Intelligence.

Popular investment themes include internet technology, robotics & AI, environment & sustainability, and healthcare technology.

Assets in thematic ETFs globally currently stand at around $170bn, implying a compound annual growth rate for the segment of approximately 12% over the next five years.

BI points to a recent survey conducted by custodian and fund administrator Brown Brothers Harriman which found that 80% of professional investors plan to increase their allocation to thematic ETFs over the next year.

The survey, BBH’s eighth annual Global ETF Investor Survey, which gathered the thoughts of 382 advisers, institutions, and fund managers, found that thematic ETFs are attracting interest particularly from retail and younger investors, and are likely to take market share from almost everywhere including smart-beta, sector, and active mutual funds.

BI argues that investors are being drawn to thematic ETFs due to their adaptability which enables the funds to invest in innovative industries and technologies as well as smaller companies that traditional GICS sectors cannot touch.

The survey uncovered varying appetite for thematic ETFs between regions, however. Demand for thematic strategies was highest amongst investors from Greater China with 84% intent on scaling up their thematic ETF allocation, compared to 81% for US investors and 69% for European investors.

Internet and technology themes are generating the most interest from investors, while robotics & AI, environment & sustainability, and healthcare technology are also popular choices.

Further supporting the strong growth outlook for the segment, BI highlights that thematic ETFs have shown an ability to retain assets during downturns – during the two weeks to 5 March 2021, despite a drop in global equity markets, thematic ETFs saw net redemptions of just $700 million, representing less than 1% of fund assets.

BI believes this reflects retail investors being more likely to stick with thematic ETFs due to the inherent long-term nature of their underlying strategies. Thematic ETFs also benefit from their focus on industry innovation and, while some might be seen as gimmicky, most have been able to capture imaginations and returns in ways traditional sectors cannot.

Eric Balchunas, Senior ETF Analyst at Bloomberg Intelligence, said: “Theme ETFs have taken in more money over the past three years than all other sector ETFs combined. The recent selloff showed their durability with minimal outflows. With $170bn they already exceed the assets of any single sector and are more than double the size of any outside technology.”