TL;DR:
- AI and big data funds contributed to over 50% of inflows into European thematic ETFs in the first half of 2022.
- These specialized funds attracted €510 million in net inflows, with AI and big data also gaining traction in open-ended mutual funds.
- Thematic mutual funds and ETFs, as a whole, experienced outflows of €510 million in contrast to previous years.
- Kenneth Lamont from Morningstar highlights AI and big data as the key drivers of global equity markets in the current year, with generative AI solutions like ChatGPT playing a significant role.
- Despite the growth in AI ETF flows, overall thematic ETF flows have declined, attributed to factors like rising interest rates, ESG concerns, greenwashing, and regulatory uncertainties.
- Traditional mutual funds continue to dominate the European thematic funds landscape, comprising 90% of assets.
- The future outlook suggests that open-ended mutual funds are likely to see marginal outflows in 2023, while ETFs remain relatively resilient, indicating the longevity of thematic investing trends.
Main AI News:
In a landscape where technology reigns supreme, artificial intelligence (AI) and big data-focused funds are setting the pace for European thematic exchange-traded funds (ETFs). Recent data from Morningstar reveals that these specialized funds have captured a substantial share, attracting net inflows totaling €510 million during the first half of 2022. This impressive figure constitutes a significant 53% of the €960 million influx into all thematic ETFs across Europe during the same period. Notably, the allure of AI and big data extends beyond the ETF domain, with open-ended mutual funds seeing an inflow of €220 million.
Despite this surge in AI and big data investments, the overall thematic mutual funds and ETF market experienced outflows of €510 million, a stark contrast to the €1.3 billion inflows witnessed the previous year and the colossal €101 billion in 2021.
Kenneth Lamont, a seasoned manager research analyst at Morningstar, identifies AI and big data as the primary driving forces behind this year’s global equity markets. He points out the widespread adoption of generative AI solutions, with a special nod to innovations like ChatGPT, which have significantly bolstered companies in this field. Lamont underscores the meteoric rise of Nvidia, the US technology giant dominating the AI chip market, whose value has more than tripled since the year’s inception. However, he also emphasizes that while generative AI promises transformative potential, the ultimate beneficiaries of this paradigm shift remain uncertain.
The first half of 2022 witnessed the ascendancy of thematic funds attuned to technological transformations, riding the wave of generative AI and its associated tailwinds, as per a report by WisdomTree. Nonetheless, in the context of AI ETF flows, the broader thematic ETF landscape has experienced a decrease in overall flows this year. Ralph Williams, associate director at Broadridge, attributes this decline to several factors, including rising interest rates, diminished environmental, social, and governance (ESG) performance, concerns about greenwashing, and regulatory ambiguities.
Intriguingly, despite the growth in ETFs, the European thematic funds market remains predominantly dominated by traditional mutual funds, which account for a staggering 90% of the sector’s assets. Lamont emphasizes that unlike the United States, where thematic ETFs hold sway, Europe adheres to a more traditionally managed narrative. In terms of future projections, while open-ended mutual funds witnessed significant inflows in 2021 and 2022, the anticipated outflows for 2023 are relatively marginal when compared to prior inflows. In contrast, ETFs have maintained their resilience, boasting lower initial flows and underscoring the enduring appeal of thematic investing trends.
Conclusion:
AI and big data investments continue to shape the European thematic ETF landscape, despite broader market difficulties. The adoption of generative AI and the success of companies like Nvidia underscore the significance of these technologies. However, challenges such as rising interest rates and regulatory concerns have impacted the overall thematic funds market, with traditional mutual funds maintaining dominance. Nevertheless, ETFs exhibit resilience, indicating a lasting appeal for thematic investing trends in the market.
