The rise of thematic ETFs: a mix of successes and a few flops

There are also themes that have not been successful but continue to perform well with certain issuers, and this highlights just how difficult it often is to understand exactly what a theme entails. “We continue,” concludes Sandrin, “to offer thematic products, such as the metaverse, where other issuers have withdrawn. Our metaverse ETF has performed very well, as it includes tech giants that have subsequently made their mark in other sectors.”

Among the issuers with the largest assets under management in thematic ETFs is VanEck, starting with its semiconductor ETF, one of the most popular. “When we analysed the artificial intelligence value chain,” explains Salvatore Catalano, Head of Sales for Italia at VanEck, “we came to the conclusion that semiconductors – for which we already had a dedicated ETF – represented the most effective way to gain exposure to this technological revolution.”

Vanguard, on the other hand, has always taken a cautious stance on the approach and philosophy behind thematic funds – the very group that pioneered index funds. ‘Attempting to pinpoint with precision,’ emphasises Simone Rosti, head of Vanguard for Italia and Southern Europe, ‘the themes or sectors that will outperform over a given period might seem an attractive solution. However, the evidence suggests that the key challenge in achieving satisfactory results with thematic investments is getting the timing right.”

The delisting of an ETF is a process that can occur with thematic instruments and others. Delisting can take place for various reasons, and technically there are two main types of delisting, each with different implications for the investor. In the first case, delisting occurs due to a merger with another investment vehicle. For whatever reason, the issuer may decide to merge the vehicle into another ETF. From a specific date onwards, the investor will hold a new ETF based on a pre-determined exchange ratio. Any non-convertible fractional units are settled in cash (with payment of any applicable tax, if due).

At that point, they will assess what to do: whether to continue with the investment or to exit if the nature and strategy of the new instrument have changed significantly from that of the one held up to that point. If the funds have the same tax domicile (e.g. both in Ireland), the conversion is tax-neutral. The situation is different if the domicile changes, and this may be relevant from a tax perspective. The investor may also close the position early ahead of the merger if they do not wish to hold the new instrument. In this case, they will pay tax on any capital gains.

A more significant scenario, however, is that of an outright delisting: the issuer decides to remove the ETF from the market because it likely has low assets under management and the business benefits are therefore limited. On the day of delisting, a final price is set based on the NAV, and the investor will be reimbursed in the following weeks once the positions have been liquidated. Once the instrument has been closed, the investor will have to pay tax if they realise capital gains or incur capital losses. To avoid having to wait for a period without access to liquidity, selling before delisting is a very popular option.

In any event, the issuer must notify Borsa Italiana of the transaction without delay, as provided for in Article 2.6.2, paragraph 3, subparagraph (c) of the Stock Exchange Regulations. The closure of the fund will be publicised by Borsa Italiana via notices, and the custodian bank and the brokers/banks will, of course, be notified; they will then provide information to their clients either through their own communication channels on the trading platform or, with greater attention to the client’s needs, by sending an email to each individual holder of the security. This is to allow investors a degree of flexibility in managing their positions.