Meme stocks are back, but fund investors moved on

livemint.com:

Wild trading in meme stocks such as GameStop and AMC Entertainment has once again captured the imaginations of individual investors, but the frenzy of YOLO trading hasn’t lifted the fortunes of the fund industry. Assets in U.S. thematic funds peaked at nearly $200 billion in 2021 and have since dropped to $120 billion, according to Morningstar Direct, even though major stock indexes are trading near records.

Thematic funds were the talk of the industry in 2021, when interest rates were ultralow and smaller growth stocks were soaring. Cathie Wood’s ARK Investment Management attracted billions of dollars to the space, prompting copycats across the industry. Asset managers launched hundreds of exchange-traded funds with such diverse themes as cannabis investing, clean energy, and the metaverse, partly because it’s cheap and easy to launch a new ETF.

Many of those funds have since closed. Investors wanting to track the recent meme-stock resurgence lost their chance when Roundhill’s MEME ETF closed late last year because of lack of interest. “The shine on thematic ETFs has certainly worn off," said Matthew Bartolini, head of Americas research for State Street’s ETF business.

Thematic funds are struggling to bring in investors even as total fund flows have been strong in 2024. Investors have pulled money from U.S.-based thematic funds for nine consecutive quarters, according to Morningstar Direct, with outflows over that period totaling almost $20 billion. Quarterly inflows to the category peaked at $35.8 billion in the first quarter of 2021, when the meme-stock frenzy kicked off in earnest.