Before You Start
- Have a brokerage account with access to European-listed ETFs (e.g., Trade Republic, DEGIRO, Scalable Capital, or Interactive Brokers EU).
- Know your thematic investment area (e.g., Clean Energy, Artificial Intelligence, Cybersecurity).
- Be comfortable navigating ETF data sources like justETF, Xetra, or Morningstar Europe.
Time needed: 30–45 minutes
What you'll need: Access to your broker’s platform, internet connection, and optionally an ETF screener like justETF (free tier is sufficient)
Thematic ETFs allow European investors to capture megatrends—like green energy, tech innovation, or demographic shifts—within a single, diversified product. But with the explosion of thematic ETFs in Europe, quality varies widely. In this tutorial, you’ll learn how to screen thematic ETFs Europe using actionable metrics: AUM, UCITS status, fees, liquidity, tracking error, holdings analysis, and regulatory filters. We’ll use real brokers and tools available to European investors, with every step explained and illustrated by example.
Step 1: Filter by UCITS Status
What to do: Only consider ETFs that are UCITS-compliant. On platforms like justETF, use the filter “UCITS compliant: Yes” when searching ETFs. On Trade Republic, tap Discover → ETFs → Filter → Regulation → UCITS.
Why it matters: UCITS (Undertakings for Collective Investment in Transferable Securities) is the gold standard for European funds. It ensures strict regulatory oversight, investor protections, and tax efficiency. Non-UCITS ETFs may have higher risks, less transparency, and can even be banned for retail investors in some EU countries.
What can go wrong: Investing in non-UCITS ETFs may result in higher tax, reduced investor protection, or even forced liquidation if regulations change.
Pro Tip
Most major brokers in Europe (like DEGIRO and Scalable Capital) only list UCITS ETFs by default. If you see an ETF denominated in USD or listed on a US exchange, double-check its UCITS status.
Step 2: Set a Minimum AUM Threshold
What to do: Check the ETF’s Assets Under Management (AUM). On justETF, the AUM is displayed on each ETF’s profile. On Scalable Capital, select an ETF and scroll to “Key Figures” for AUM. Set a minimum threshold—typically €100 million for thematic ETFs.
Why it matters: Higher AUM means the ETF is more likely to be sustainable, liquid, and prioritized by the issuer. Thematic ETFs with low AUM are at higher risk of closure (“delisting”), which can force a taxable event and disrupt your investment plan.
What can go wrong: Investing in ETFs with AUM under €50 million increases the risk of fund closure. Liquidation can result in forced sales and unexpected tax liabilities.
Pro Tip
For niche themes, you might have to settle for lower AUM, but always be aware of the increased risk. Recheck AUM every 6–12 months.
Step 3: Compare Total Expense Ratios (TER)
What to do: Find the ETF’s TER (Total Expense Ratio) on your broker’s ETF details page. For example, on DEGIRO, click the ETF, then scroll to “Costs.” On justETF, it’s listed under “Costs.” Aim for a TER under 0.60% for broad themes, but up to 0.75% can be acceptable for niche exposures.
Why it matters: TER is the annual cost charged by the ETF provider. High fees erode returns, especially over many years. Thematic ETFs tend to be pricier than broad index funds, but excessive fees rarely add value.
What can go wrong: Overlooking TER can lead to significant performance drag. Remember that “management fee” is sometimes lower than TER; always use TER for accurate comparison.
Pro Tip
Some brokers (like Trade Republic) offer zero-commission ETF savings plans, but you still pay the ETF’s TER. Don’t confuse broker fees with ETF costs.
Step 4: Assess Liquidity (Volume & Spread)
What to do: Check the ETF’s average daily trading volume and bid-ask spread. On Xetra (official site), search the ETF ticker and view “Turnover” and “Spread.” On DEGIRO, click on the ETF and look for “Liquidity” or “Market Data.” Prefer ETFs with at least €500,000 in daily volume and a spread under 0.3%.
Why it matters: Higher liquidity means easier trading at fair prices. Illiquid ETFs can be hard to buy or sell without moving the price, especially in volatile markets.
What can go wrong: Buying illiquid ETFs may result in unexpectedly high transaction costs due to wide spreads, or even partial fills if your order is large relative to daily volume.
Pro Tip
For large orders (>€10,000), use limit orders instead of market orders to control your purchase price, especially in less liquid ETFs.
Step 5: Check Tracking Error and Replication Method
What to do: On justETF, scroll to “Tracking Difference” in the ETF’s profile. On Morningstar Europe, search the ETF and look for “Tracking Error.” Prefer ETFs with a tracking error under 1.5% per year. Also, check if the ETF uses physical (direct) or synthetic (swap-based) replication—this is usually stated under “Replication Method.”
Why it matters: Tracking error shows how closely the ETF matches its index. Lower tracking error means more reliable performance. Physical replication is generally preferred for transparency, but synthetic can be acceptable for hard-to-access markets.
What can go wrong: High tracking error means the ETF may underperform its benchmark, especially in volatile or illiquid themes. Synthetic ETFs add counterparty risk, which may not be suitable for all investors.
Pro Tip
If you see a synthetic ETF (often labelled “Swap” or “Synthetic”), check the provider’s documentation for collateral quality and counterparty risk.
Step 6: Analyse Underlying Holdings
What to do: Review the ETF’s top 10 holdings and sector/country allocations. On justETF, click “Portfolio” in the ETF profile. On Scalable Capital, scroll to “Holdings.” Confirm that the ETF is truly thematic—e.g., a Clean Energy ETF should have significant exposure to renewable energy firms, not just large utilities.
Why it matters: Some thematic ETFs are “diluted” with off-theme holdings to boost size or liquidity. True thematic purity enhances your exposure to the targeted trend.
What can go wrong: “Watered-down” ETFs may underperform during strong theme rallies and fail to provide the exposure you expect.
Pro Tip
Look for ETFs that disclose their full holdings monthly or quarterly. Transparency is a positive signal from the provider.
Step 7: Apply Regulatory and ESG Filters
What to do: Check if the ETF is classified under SFDR Article 8 (promotes environmental/social characteristics) or Article 9 (sustainable investment as an objective). On justETF, filter by “ESG” or check the “Sustainability” tab. On DEGIRO, look for “Sustainability” or “ESG Score.”
Why it matters: More European investors are required (or choose) to invest in ESG-aligned products. Article 8/9 ETFs may have regulatory or tax advantages and are more likely to avoid controversies.
What can go wrong: Ignoring ESG status may result in future restrictions for institutional or workplace investors, or even personal exclusion criteria.
Pro Tip
SFDR Article 8/9 status is not a guarantee of impact. Read the methodology section in the ETF’s factsheet for details about exclusions and sustainability claims.
Example: Screening a Clean Energy Thematic ETF
Let’s walk through an example using the iShares Global Clean Energy UCITS ETF (ISIN: IE00B1XNHC34):
- UCITS: Yes (listed on Xetra, Euronext, etc.)
- AUM: ~€5.1 billion (as of Q2 2024)
- TER: 0.65% per year
- Liquidity: Average daily volume >€10m, spread <0.1% (Xetra)
- Tracking Error: 1.2% per year (justETF data)
- Replication: Physical
- Top Holdings: Enphase Energy, SolarEdge, Orsted (all core to clean energy theme)
- SFDR: Article 8
This ETF passes all our quality screens. You can find similar details for any thematic ETF using the steps above.
Common Mistakes
- Ignoring AUM: Choosing ETFs with low assets increases closure risk.
- Overlooking fees: High TERs can quietly erode your returns.
- Confusing broker fees with ETF costs: Zero-commission doesn’t mean zero cost.
- Neglecting liquidity: Illiquid ETFs can be expensive to trade.
- Not verifying UCITS status: Non-UCITS ETFs may be restricted or riskier.
- Assuming all thematic ETFs are pure-play: Always check underlying holdings for true theme exposure.
Next Steps
- Shortlist ETFs that pass all filters and compare their historical performance (preferably over 3–5 years, but remember: past returns are not indicative of future results).
- Read each ETF’s Key Investor Information Document (KIID) and factsheet before investing.
- Consider starting a small position using a savings plan (e.g., via Trade Republic or Scalable Capital) to average in over time.
- Review your thematic ETF holdings annually to ensure they still fit your investment goals and the theme remains relevant.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting a qualified financial advisor before making investment decisions.