| Yuval Tzuk, Research Unit, Stock Exchange
In recent years, the trend of investing in thematic funds in Israel and around the world has intensified, especially during the corona plague in the last two years. The thematic funds as they are – invest in stocks by theme (topics).
In Israel, the market for mathematical funds has grown from a few funds at the end of 2017 to about 145 mutual funds and imitation funds today, as well as a number of other open-ended mutual funds, through which the public can invest and join the trend.
Investing in thematic funds is an investment whose underlying strategy is to identify long-term trends in technological, demographic, environmental or social changes that are supposed to affect the economy over time, in order to profit from those trends. Unlike other funds, thematic funds invest in long-term stocks regardless of short-term changes such as market capitalization, momentum, liquidity and more, so the timing or investment of the investment is relatively less critical. A fund’s investment according to a particular trend includes companies from a variety of sectors, which can profit in the long run from the same trend. Such changes, called “super-trends” (Mega Trends), that the world has gone through in recent decades and are familiar to all of us are, for example, the Internet, cell phones, electric vehicles and social networks.
It is common to divide thematic funds into three types: technology, socio-demographic, and physical world / environment (Physical World / Environment).
According to the global investment house BlackRock, there are 5 super-trends that affect the future:
- Technological breakthroughs – Exponential technological advancement of the world.
- – Demographic and social changes – increase in life expectancy, changes in consumption habits, innovative medical developments.
- – Rapid urbanization – a trend of mass migration and moving to cities, which requires the adjustment of infrastructure and new business models.
- – Changes in the weather and lack of resources – an increase in the demand for energy resources, food and raw materials, along with global warming, development of alternative sources.
- – Middle class growth in emerging markets – Increase in consumption of a new affluent population mainly in Asia.
The most prominent super-trend is Technological breakthroughs, Which are the creation of “Disruptive Technology”, also called “Disruptive Innovation”, which over time lead to the repression and replacement of the existing traditional market, among them: robotics and automation; Artificial Intelligence (AI) and Machine Learning (ML); Cloud technology; Green technologies (cleantech); Fintech; Electric vehicles and future transportation; Cyber protection; Internet of Things (IoT); Blockchain and crypto.
Other notable super-trends are:
- – Demographic-social changes: Includes topics such as changes in consumption habits – online shopping and e-commerce (e-commerce), cooperative economics (joint use or barter of goods and services), cannabis (medical and legalization), Millennials’ consumption such as gaming and streaming; Changes in consumption habits; Population aging (increase in life expectancy, decrease in birth rate), urbanization (beyond the big city); A healthier lifestyle, an increase in spending on health, alternative and digital medicine, and on wellness.
- Physical environment: Includes topics such as cleantech and renewable / alternative energy, natural resources like water, weather changes.
Many trends in the field of demographic-social and environmental changes rely on technology, such as gaming and streaming, e-commerce, medical innovation, P2P lending, moving from work at home and energy efficiency.
Thematic funds focus on a narrow issue, so the risk in investing in them is higher than in more decentralized funds.
| Developments in thematic investments in the world
The growth trend in investments in thematic funds in the long term continued, with the total assets managed by these funds (ETFs and ETPs) worldwide jumping from about $ 61 billion at the end of 2015 to about $ 437 billion at the end of 2021. In 2021 alone, total net fundraising amounted to $ 80 billion, and the total assets managed in these funds increased by about 20% compared to 2020.
It should be noted that from October 2021 when a record of 441 billion dollars was recorded until the end of February 2022 the mathematical funds market experienced a wave of redemptions.
The mathematical fund market has grown at the highest rate in Europe, and about half of this market now comes from European funds, while US funds account for about 30% of the market. .
Total investments Globalism In thematic funds, today constitutes over 4% of the total investments in mutual funds and imitation funds.
In Europe the vast majority of thematic funds are active mutual funds, while in the US most passive funds are index-tracking.
| Developments in mathematical investments in Israel
In Israel, the market for mathematical funds grew from individual funds at the end of 2017 to about 145 mutual funds and mutual funds today, about 70% of which are mutual funds and about 30% of which are mutual funds traded on the stock exchange.
The total assets managed by these funds jumped from NIS 8.7 billion at the end of 2020 to NIS 11.7 billion in the half of 2021. But in the last months of 2021, as in the world, and despite the launch of over 50 new thematic funds in 2021, thematic funds in Israel suffered redemptions Significant, and the total assets they manage decreased to about NIS 10.7 billion at the end of 2021, and continued to decrease to about NIS 8.2 billion at the end of March 2022.
One of the main reasons for the redemptions of the mathematical funds is the declines in their rates by an average rate of about 10% in the second half of 2021, while at the same time both the local indices and leading international indices rose at the same rate (TA-125 and TA-90 rose by 17 % And about 15%, respectively; S & -P500 and Nasdaq-100 about 11% and about 12%, respectively).
The high management fees of the thematic funds, which range from 0.5% to 1% (about 0.8% on average), compared to the management fees of funds that follow market value indices or industry indices that range from 0% to 0.5% (about 0.3% on average ), Further widening the gaps in yields.
In addition to the above funds, there are about 25 thematic open-ended mutual funds, with a total assets of about NIS 1 billion. The popular issues in which these open-ended funds invest are ESG, green energy and cyber.
At the end of March 2022, the total assets of mathematical funds in Israel constituted approximately 4.8% of the basket funds and imitation funds.
Only 10 funds follow local stock indices on the Tel Aviv Stock Exchange, with their total assets amounting to NIS 200 million – most of them in cleantech and renewable energy funds.
Among the mathematical funds traded on the Tel Aviv Stock Exchange are 6 foreign funds of iShares, Lyxor and Invesco that have listed their mutual funds in Tel Aviv.
The leaders of the leading indices, whose mathematical funds follow their indices, are the Nasdaq Group (approximately NIS 2.9 billion), INDXX (approximately NIS 2.6 billion), MVIS-BlueStar and S&P (approximately NIS 1 billion each).
About 80% of the index-based mathematical funds traded on the Tel Aviv Stock Exchange are funds that invest in technology, in which more than 90% of the total assets managed by all the basket funds and the mathematical imitation funds are invested.
The “hottest” areas today in funds traded in Tel Aviv are:
– Semiconductors: The shortage of chips that began in 2021 highlighted their importance in a variety of areas, from vehicles to cell phones, and the expectation of huge investments in the field following this crisis led to the registration of several “semiconductor” funds and a sharp jump in their assets, amounting to NIS 1.8 billion in 11 funds.
The largest of which are two funds that follow the stock indices of the largest companies in this field traded in the US – Mimka Fund (30 largest shares in the field), and KSM ETF (4D) MVIS US Listed Semiconductor 25 (TASE 🙂 (25 largest shares in the field ).
– Cyber: The field of cyber protection has been of great interest in recent years, and the assets currently managed by 10 funds in this field, which mainly track NASDAQ’s ISE Cyber Security Index, amount to about NIS 1.4 billion.
The largest of which are the Harel Basket (4A) ISE Cyber Security Neutralized Dollar Fund (TASE 🙂 and the Imitation Fund, which track an index that includes 60 shares of cyber technology and services companies traded on various stock exchanges.
Cleantech and green energy: Thematic funds from various green fields, such as cleantech technologies, renewable energy and energy storage.
A total of 20 funds with managed assets in the amount of NIS 1 billion, of which 6 are funds on the Tel Aviv-Cleantech index. TTF is a currency neutralizer that includes stocks from the field of green energy technologies and is traded in the US.
– cloud computing: 7 funds in the field of cloud computing with a total of assets under management of approximately NIS 800 million. The largest of these is the MTF imitation fund, which mimics Indxx US Cloud Computing, which has about 60 foreign-denominated stocks and is traded in the United States.
E-Commerce / Online Shopping: These theme funds include shares of companies in the field of e-commerce and online consumption (8 funds with managed assets in the amount of NIS 600 million). A prominent imitation fund in this regard is the stock index of about 50 companies whose main income is from e-commerce, which is traded in the United States.
Among the thematic open-ended mutual funds, the following areas stand out:
– ESG with 7 funds that follow the ESG indices with a total of assets under management of approximately NIS 460 million.
– Green energy: 5 funds with total assets under management in the amount of NIS 250 million.
Other topics of the thematic screenings include: blockchain and crypto, agrotech, working from home, caring for animals, old age (aging population) and cannabis.
| Foreign thematic funds that invest in shares traded on the Tel Aviv Stock Exchange
The largest foreign mathematical fund that invests in shares on the Tel Aviv Stock Exchange is ARK’s Innovative Israeli Technology Fund (NYSE :), which is traded in the United States and invests in Israeli technology companies. The fund has received redemptions of over 50% of its assets in the past year. At the end of March, the fund held about 70 shares for about $ 160 million, of which about 30 shares are traded in Tel Aviv for about $ 72 million.
Other foreign funds that are not listed on the Tel Aviv Stock Exchange, and have significant investments in companies listed on the Tel Aviv Stock Exchange, are funds that monitor companies in the field of renewable energy from the entire value chain (technology, energy, infrastructure, industry and finance). These funds invest in the largest companies in the field on the Tel Aviv Stock Exchange – Analyte, Energix, Ormat (NYSE 🙂 Technologies, Nofar and Doral, the most prominent of which are Invesco’s Invesco Solar ETF (NYSE :), and iShares Global Clean Energy ETF (NASDAQ: ) And INRG of iShares (with a total investment of over $ 250 million in Tel Aviv in the above shares in March 2022).
The author is an economist in the research unit of the Economic Department of the Stock Exchange. The text is presented as a service to the public and is intended for personal use and general enrichment only and may not be used for any commercial or other purpose. The above information or any part thereof shall not be construed as advice, guidance, advice, opinion or recommendation to act in one way or another, including in connection with investment decisions or as a presentation or commitment of the TASE and / or the TASE Group companies, and is not Is a substitute for personal counseling based on each person’s needs and data. The stock exchange, its employees and anyone acting on its behalf or on its behalf does not guarantee the completeness of the information for its up-to-date or its suitability for this or that specific need, and is not responsible for any defect, error, error, omission or inaccuracy in the information for any reason.