Thematic versus Momentum Investing

Performance chasing with a narrative versus systematic performance chasing

October 2022. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Thematic products underperform the stock market on average
  • The exposure to the momentum factor was low to negative recently
  • Systematic performance chasing beats performance chasing with a narrative


Space: the final frontier. Where no man has gone before….

Well, wealthy folks can now go there by booking a ticket with Virgin Galactic. It will not be deep space and it could be debated if that is space at all as it is merely a trip to earth’s orbit, but it will be on a space shuttle and passengers will experience zero gravity.

For people that can not afford the $450,000 ticket price but want to bet on the final frontier becoming the gateway for our civilization, they can invest in ETFs like the ARK Space Exploration & Innovation ETF (ARKG) or Procure Space ETF (UFO). These provide exposure to companies engaged in this space (pun fully intended).  

Asset managers have made capital markets more exciting by launching hundreds of such thematic products that allow investors to speculate on topics ranging from artificial intelligence to the metaverse. However, exciting products are not necessarily wise ones. Also, thematic investing does sound like momentum investing. 

In this research article, we will explore the differences between thematic and momentum investing. 


Instead of aggregating all thematic products, we will focus on 10 themes in this analysis. We randomly select the themes from the ETF universe, where each thematic index is constructed by using at least two ETFs. Cumulatively these products manage close to $20 billion of assets and charge an average management fee of 0.61%. 

The issue with thematic investing is that most investors only care about them if the narrative is supported by performance. There is nothing more seductive to investors than a great story combined with outsized returns.

However, this leads asset managers to launch many themes throughout the year as they do not know which one will outperform. They just need to be ready with marketing materials when that does occur.