How Major Events Reshape Thematic Fund Performance: Lessons for Investment Professionals

Disruptive events such as geopolitical developments, technological advances, and global health crises have measurable impacts on the performance and risk profile of thematic funds. This article, the second in a three-part series (view part one) examines how significant market events have influenced thematic funds in recent years. It draws on research and data to highlight practical considerations and approaches for professionals across risk assessment, portfolio construction, and investment decision-making. For full details and charts showing thematic fund responses to all events discussed here, download our white paper: How Major Events Reshape Thematic Fund Performance. 

Events and Their Role in Thematic Investing

Traditional risk models, which often rely on historical correlations and periodic rebalancing, may not fully capture the effects of abrupt market events. Because thematic funds are designed to track long-term trends such as clean energy, AI, or digital assets, they often respond to events with pronounced movements that can highlight their risk and return characteristics.

Market-moving events take several forms: macroeconomic shifts, geopolitical conflicts, regulatory changes, natural disasters, and technological launches. Each can cause rapid and potentially persistent changes in asset prices and investor sentiment. For those responsible for managing portfolios or developing new products, understanding which events drive the most significant thematic responses is important for anticipating both risk and opportunity. Thematic funds provide an opportunity to take directional bets in anticipation of upcoming events or in response to events in progress.

The following table summarizes some major market events since 2020 and the thematic funds most affected by them:

Event Studies and Thematic Fund Behavior

Event studies provide a method for evaluating how securities and funds react before, during, and after major events. By resetting returns at the event date and tracking subsequent performance, analysts see which themes are most sensitive to shocks, which recover quickly, and which lag.

For example, the Covid-19 crash in early 2020 led to a sharp market decline, but thematic funds with exposure to genomic advancements rebounded strongly. For example, ARK Genomic rose to 2.8 times its pre-crash peak, while other funds in the same segment showed more moderate gains. Telecom and housing themes, on the other hand, did not keep pace with the broader market during the recovery, demonstrating the importance of understanding specific exposures.

Event studies also highlight differences between anticipated and unanticipated events. The Clean Energy Bill’s passage in 2022 saw clean energy funds appreciate in the months prior to the vote, followed by a reversal soon after. That’s a pattern consistent with market anticipation. In contrast, the invasion of Ukraine in 2022 was not widely anticipated, resulting in a rapid increase in clean energy themes, particularly among uranium miners.

Diversification and Risk Assessment

Many market events are irregular and not closely correlated with traditional risk factors. As a result, they can provide diversification benefits for portfolios typically constructed using systematic strategies. However, these same events can reveal limitations in quantitative models. For example, relief rallies during bear markets may benefit companies with weaker fundamentals, challenging strategies based on periodic rebalancing. Liquidity-driven shocks can also cause multiple quant factors to fail simultaneously.

To address these challenges, risk analysts and portfolio managers increasingly use granular data such as FactSet RBICS with Revenue and GeoRev to map exposures at the business segment and geographic level.  FactSet Supply Chain data can further show how shocks move through interconnected industries, identifying vulnerabilities and potential areas of outperformance.

Variation Among Thematic Funds

Events often highlight differences among funds within the same theme. During the Covid recovery, for example, some genomic funds outperformed significantly while others lagged, despite having similar mandates.

The Silicon Valley Bank failure in 2023 illustrated divergence between FinTech and blockchain funds: FinTech ETFs underperformed the Nasdaq, while blockchain and digital economy ETFs outperformed, with some doubling in value over four months.

The launch of ChatGPT in 2022 also revealed differentiation. AI and robotics funds performed well, but older themes like 3D printing did not share in the gains, despite being part of the broader innovation category. These variations reinforce the need for detailed attribution and exposure analysis.

Time Horizons and Event Characteristics

Not all events have the same time profile. Sudden shocks such as the Covid crash or tariff changes tend to resolve quickly, with rapid market reversals. Tail risk funds are more effective in these circumstances but are not designed to provide protection during prolonged drawdowns, such as the multi-year bond market decline starting in 2021. Gold, in this instance, performed better during extended uncertainty, emphasizing the importance of short- and long-term strategies.

Events with clear deadlines, such as policy votes, are often anticipated by the market, leading to price movements before the event and possible reversals after. Unexpected events such as natural disasters or cyberattacks can cause abrupt and sometimes lasting changes in thematic fund performance.

Considerations for Investment Professionals

Given these insights, investment professionals can enhance their approach to thematic portfolios by taking several actionable steps:

• Incorporate event analysis: Use event studies to assess portfolio risk and anticipate which themes may respond to future shocks.

• Utilize granular data: Tools like FactSet RBICS, GeoRev, and Supply Chain datasets can clarify exposures at the segment and regional level.

• Monitor fund differentiation: Recognize that not all funds within a theme will respond similarly; detailed analysis is necessary for effective risk management.

• Adapt allocation strategies: Align asset allocation with both short-term protection and long-term thematic rotation, depending on the nature of potential events.

Major market events continue to influence the performance landscape for thematic funds. By applying event-driven analysis and leveraging detailed data, investment professionals can better understand and respond to disruptive shifts in markets. Thematic investing benefits from recognizing how events shape trends in real time and adjusting strategies accordingly.

Learn More

Download our white paper, How Major Events Reshape Thematic Fund Performance, and explore are related solutions: 

• Our Portfolio Analytics module provides comprehensive tools for evaluating thematic ETFs, including risk factor attribution, scenario analysis, and efficiency scoring. 

• FactSet RBICS with Revenue reveals the true sector exposures of a company, index, or portfolio based on a multi-sector classification of each firm’s primary and ancillary revenues to the 1,900+ subindustries of RBICS. 

• Geographic Revenue Exposure data provides a highly structured and normalized display of companies’ revenues by geography through a proprietary four-level geographic classification structure.

• Supply Chain Relationships data exposes and classifies the business relationships and interconnections among global companies. Relationships are sourced from trusted primary sources and reverse-linked to non-disclosing parties.

To learn more about incorporating thematic strategies into institutional portfolios, contact your FactSet representative.

Further Insights

This is the second article in our three-part series on thematic strategies for institutional portfolios. If you missed part one, view the blog article and white paper.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.