Thematic energy funds gain popularity in China

China has risen to become the largest thematic fund market outside the US and Europe, according to Morningstar.

In 2021, a record high 169 new thematic funds were launched in China, pushing the total number of thematic funds to 373, Morningstar reported in its “Global Thematic Funds Landscape 2022”.

The number of new launches in China contributed to half of the total newly incepted funds globally.

The AUM in China-domiciled thematic funds increased 51% in 2021 to $90bn, making China the largest thematic fund market outside of Europe and the US, with 11% global market share.

“The remarkable growth of thematic funds in China over the past year was mainly driven by new product launches, consistent net assets inflows and strong market performance, especially for thematic funds in energy transition, digital economy, and future mobility themes,” said Yoki Wu, manager research analyst at Morningstar China.

Popular themes

Technology themes were the most popular among both Chinese and global investors, with 60% of the global newly launched funds belonging to the technology broad theme.

Despite a tough year for the Chinese equity market in 2021, energy transition, digital economy, and future mobility were the themes that outperformed. Around 40% of all new launches in China last year were on these themes as asset managers.

The popularity of these themes has been influenced by Beijing’s commitment to carbon neutrality, whereas the Sino-US trade war also pushed the government to seek technological independence.

Yet, the market share for funds falling under the social broad theme shrank to 26% as of the end of 2021, down from 59% two years ago, Morningstar found.

The number of China-domiciled passive thematic funds has also increased significantly in recent years and is now nearly twice the number of active thematic funds, according to the report.

Nonetheless, in terms of AUM, active funds still accounted for 45% of total thematic fund assets at the end of 2021.

As of the end of 2021, China AMC was the largest thematic fund provider in China with AUM of $12.4bn, followed by E Fund and GF Fund.

Meanwhile, the assets of thematic funds domiciled in Hong Kong grew 27% year-on-year to $2.7bn as of the end of 2021, with more than a third of the assets launched in the recent two years.

ETFs accounted for the majority (87%) of the AUM in the Hong Kong thematic funds market, the report found.