Beyond the Surface: Building Thematic ETFs That Deliver

In a crowded ETF market, it’s not enough to offer thematic exposure at face value. Investors deserve depth—rigorously designed funds that reflect the true potential of a theme while providing measurable outcomes. Below, we address key questions that explain our approach to thematic investing and offer our thoughts on the topic.

Why is it critical for an ETF issuer to have domain expertise in the themes they invest in?

Domain expertise isn’t just an advantage—it’s essential. Designing a thematic ETF requires deep knowledge of the dynamics, trends and challenges within a thematic area. Unlike many issuers that rely on off-the-shelf indices created by third parties, we design and build everything in-house.

This approach demands a different level of commitment:

• Understanding the theme’s fundamentals: Knowing the technological advancements, market adoption rates and competitive landscape.
• Avoiding common pitfalls: Sidestepping the inclusion of unrelated names that dilute the fund’s integrity.
• Credibility in communication: Being able to articulate the theme’s investment case convincingly to investors.

Ultimately, domain expertise enables us to go beyond simply tracking an index—it allows us to create strategies that identify high-quality companies, address inefficiencies and stay true to the essence of each theme.

How can investors ensure a thematic ETF provides true exposure to the theme it claims to represent? Is providing true exposure sufficient?

Thematic purity—where an ETF includes only companies directly aligned with the core value proposition of a theme—is a vital starting point. However, true exposure goes beyond this baseline.

What should investors look for?

1. Rigorous selection: High-quality companies with strong moats, proven innovation and alignment with long-term thematic trends.
2. Strategic exclusions: Avoiding companies with only a tangential connection to the theme, even if they are large or popular.
3. Thematic upside: Identifying companies that not only represent the theme but also have significant growth potential tied to its trajectory.

Without these elements, an ETF risks being a thematic in name only, failing to deliver on the promise of capturing a theme’s full potential. Our approach ensures that our ETFs don’t just align with their themes but maximise the investment opportunities they offer.

How does genuine sustainable thematic (impact) investing differ from many of the sustainability funds currently on the market?

Thematic sustainability is about more than just screening out undesirable companies. Many ESG-screened funds are modified versions of traditional indices, often offering minimal real-world impact.

Our approach to sustainable thematic investing focuses on transformative megatrends with tangible, measurable outcomes, including:

• The EV revolution and its ripple effects across transportation and energy storage.
• Advances in energy efficiency, such as heat pumps and battery innovations.
• Broader impacts of renewable energy adoption on the global economy.

By focusing on these high-impact areas, we ensure our funds balance economic opportunity with meaningful contributions to environmental and social progress. This is thematic sustainability as it should be—intentional, impactful and forward-looking.

How can systematic strategies in an ETF wrapper have an advantage in helping clients achieve their portfolio objectives?

Systematic strategies bring precision and consistency to thematic investing. Built on rules-based methodologies, they allow for:

• Transparency: Investors know exactly how and why companies are selected.
• Consistency: The process minimises human bias, ensuring a stable approach to portfolio construction.

Combined with the inherent advantages of the ETF structure—cost efficiency, liquidity and tax transparency—systematic strategies provide a powerful way to integrate targeted thematic exposures into a broader portfolio.

How can investors identify if an ETF is truly active and what are the key benefits of active strategies in an ETF wrapper?

A truly active ETF is defined by differentiation. Look for these hallmarks:

• High active share: Significant divergence from benchmarks.
• Low overlap: Avoidance of traditional index constituents unless they’re thematically relevant.
• Focus on innovation: Concentration on under-researched and misunderstood areas.

Active ETFs enable us to go where benchmarks cannot. For example, we focus on disruptive innovation, identifying companies that offer the highest upside potential but may be overlooked in traditional indices. And because these strategies are delivered through an ETF wrapper, investors benefit from liquidity, tax efficiency and transparency—hallmarks of a modern, flexible investment vehicle.

The Bigger Picture

ETFs have revolutionised how investors access markets, but not all ETFs are created equal. Whether through systematic or active strategies, our approach ensures that thematic purity, rigorous selection and deep expertise are the cornerstones of everything we do.

Our commitment is simple: to deliver thematic ETFs that provide investors with meaningful exposure and compelling opportunities, all while staying true to the themes that define our future.