Thematic funds are bull market phenomena – they disappear in bear markets, only to reappear in the next bull market.
Thematic funds play into investors’ psyche of trying to extract the most from a bull market.
Thematic funds are high risk products which require investors or their guides to take timely entry and exit calls.
MFDs must ask themselves whether they have the ability, conviction and courage to take entry and exit calls in thematic funds for their clients, before recommending any.
For investors, MFDs and advisors who have this ability to time their entry and exit, thematic funds can offer a source of alpha for satellite portfolios.
Thematic funds deliver gains to AMCs (sales) and MFDs (higher commissions). When entry/exit is not managed nimbly, they deliver only pain to investors.
MFDs who feel “obliged” to participate in thematic NFOs due to relationship pressures must understand that while AMC RMs are encashing their relationship with MFDs in such initiatives, MFDs are also guilty of encashing their relationships with clients to whom they offer such funds.
Smart MFDs can use these phases of thematic launches to differentiate themselves from the rest by showcasing the discipline of their investor-focussed fund selection process, and how this helps deliver better investor outcomes.
There is no point in trying to limit manufacturers (AMCs)from creating whatever products they want which regulators allow them to launch. The filter on what is suitable for which investor has to be at the MFD’s end – and not at the manufacturing end.
Product suitability is an MFD’s key role – let’s use excesses in the system to demonstrate our value to our clients rather than falling prey to these excesses, at the cost of our investors.