The current COVID-19 downturn and maturation of traditional indexed investments is pushing pension fund investors to consider more focused passive investments. This “theme investing,” as it is referred to in a recent study from DWS and CREATE-Research, should gain traction as investors look to invest passively, albeit more selectively.

Growth in broad market passive investments and exchange-traded funds are expected to level off or even decline over the next three years, according to survey data, while ESG and thematic strategies will see an uptick in interest with more modest demand in smart-beta funds. In reasoning this shift, researchers point to a couple motives.

The first is the already high market penetration of index funds and the diminishing returns investors can expect as the demand for equity shares eventually escapes the gravitational pull of fundamentals.

The other is the market dislocation that has been created in 2020, the type of environment that should put active investing in the lead. But the dislocation also creates opportunity to pick specific growth areas of the market to invest passively in selected areas of the market, while avoiding others.

The survey, published by DWS Group in conjunction with CREATE-Research, polled 131 defined contribution and defined benefit plans globally, with about €2.3 trillion ($2.6 trillion) in assets. Public plans comprised 39% of respondents, with private funds making up the remainder.

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