The three ETFs, which have total expense ratios (TERs) of 0.49%, offer investors exposure to artificial intelligence, healthcare breakthroughs and clean water.
LGIM’s head of ETFs Howie Li (pictured) said the ETFs enable investors “to hold companies directly benefiting from these themes, with bespoke indices constructed around active selection and research”.
Following the launch, we asked the Product Panel to take a look at the constituents of the ETFs and judge what its appeal might be to investors looking to gain exposure to thematic ETFs.
Thematic investing tends to have a special allure for the naturally curious, and the disruptive technology range ETF that LGIM has been building are certainly well-reasoned and provide a strong intellectual draw. The latest three launches in the range build out into areas which are particularly topical.
By partnering with specialists such as ROBO Global for AIAI and DOCT, and Global Water Intelligenc® for GLUG, these ETFs utilise next-generation indices. Compared to simplistic industry classification, these novel indices can be much more discerning and targeted, identifying emerging players that are often the cornerstone of disruptive technologies.
I can certainly see why there would be demand for these products. However, I would also raise a note of caution with any thematic investment, and that is not to let a strong narrative distract from investing fundamentals, for example around the realistic prospects of earning growth and valuation. With charges of 0.49%, the cost seems relatively reasonable for a more sophisticated thematic product.
Overall, I think these launches provide interesting food for thought, and I am sure a number of investors will be attracted to them. I would avoid having them as a core building block of a portfolio, but they may find a place as a satellite holding for more adventurous investors.
Oliver Smith, IG
The launch of more thematic ETFs by LGIM, at a time when Woodford Investment Management is under considerable scrutiny, helps increase the credibility of the ETF asset class as a source of both actively managed and niche investment strategies for the retail investor.
Investors can now choose between similar iShares vehicles and those of white-labeller HANetf in building portfolios with thematic tilts, when before it would have to be an actively managed fund.
LGIM’s new launches do not have the stock concentration issues that some ETFs have, with maximum position sizes of no more than 3%.
Nevertheless, it is still worth looking at the underlying holdings, as some businesses, such as GLUG’s allocation to Halma, appear to have only modest exposure to the themes.
Despite being one of the most abundant commodities on earth, unequal geographic distribution and booming population growth mean that the long-term investment prospects surrounding the treatment and distribution of water remain compelling.
LGIM have spotted a gap in the market and have launched the first new water-themed ETF in Europe for over ten years. Currently, its two largest rivals share over €1.2bn in assets. With an ongoing charge of 0.49%, the new launch undercuts both on price.
While the new LGIM Clean Water ETF shares over two-thirds of its holdings with the popular existing iShares Water ETF, it also stands apart in two key ways.
Firstly, the equal weighting methodology it employs means that the fund has a pronounced tilt towards smaller stocks.
Secondly, its stock selection criteria means it holds not just traditional water companies but also those with a strong expertise in water engineering and water technology.