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Why aren’t we investing in XYZ innovation fund?

  • Some Thematic funds may seek to profit from technological and economic trends such as artificial intelligence and disruptive technology.
  • The names have changed, but the strategy is not new. Many thematic funds have a history of popping up in sectors following strong performance.
  • Unfortunately, these solutions often have undesirable characteristics:
    – High concentration: on average, 50% of assets are invested in the top 10 holdings.
    – Expensive: the average thematic fund costs more than 60 bps.
    – Poor performance: from January 1996 – July 2018, new thematic funds underperformed the MSCI ACWI IMI by 3.3% annually in their first two years after launch. In addition, less than 15% of thematic funds remain open for 15 years or longer.

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