Regardless of all of the exceptionalism that’s as American as a bald eagle chomping apple pie whereas cruising on a Harley-Davidson, the US is behind a lot of the world in some methods. One not-so-obvious space is funding in thematic funds, although due to the rise in energetic ETFs, the nation is shortly catching up. That’s not essentially a superb factor.
Belongings in thematic US funds grew 50% over three years as of the third quarter of 2025, bringing the nation’s share of the $779 billion market to 23%, in keeping with a report final week from Morningstar. That has occurred as energetic ETFs have ballooned in quantity and complete property. “It feels a bit of bit just like the Wild West within the US,” stated the examine’s creator, Kenneth Lamont, principal of supervisor analysis at Morningstar. “There are lots of worries to me, should you take a look at them.”
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It’s straightforward to see why persons are drawn to thematic funds, as ventures like house exploration are attention-grabbing and thrilling, Lamont stated. However lots of the comparatively new ETFs include larger than common charges that in the end hinder their efficiency, he famous. And there’s no consistency, as asset managers have various concepts of what belongs even in an AI fund, for instance. As with every energetic funds, the standard of funding managers additionally differs. And never all concepts pan out.
Take, for instance, the Steadman Oceanographic Fund. It began within the mid-Twentieth century and was primarily based on the thought of constructing life underwater, together with agriculture and housing. Although the fund survived for about 40 years, it frequently misplaced cash till its shares had been value lower than a penny. A extra profitable funding product, Pictet’s Water Fund, began in 2000 and focuses on corporations working to assist meet calls for for water globally. That agency, second solely to BlackRock in thematic funding property worldwide, not too long ago launched its first US ETFs.
“There’s something very charming about [thematics],” Lamont stated. Largely, buyers “simply purchase the story, not the precise funding.” In Europe, the place property in thematics have been declining, most merchandise are mutual funds. Within the US, energetic ETFs have led to methods for retail buyers to make bets, within the worst instances akin to playing, as seen with leveraged merchandise, Lamont stated.
A couple of highlights of the report:
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There have been 332 US thematic funds as of Sept. 30.
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Web flows into them within the first three quarters of 2025 had been $19 billion, displaying the strongest demand since 2021.
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The most important US issuers of thematic funds are First Belief, International X, BlackRock, ARK and Kraneshares.