Measuring Thematic Funds Performance via an Approach Based on Observable and Latent Factors

This paper investigates whether thematic equity funds deliver abnormal performance relative to conventional global equityfunds. Using Fama‐French models augmented with latent factors, we estimate fund‐level alphas, and apply the false discoveryrate methodology to an estimated three‐group mixture distribution, separating good, null and bad performing funds, distin-guishing abnormal performance from luck. Thematic funds' alpha distribution meaningfully differs from that of non‐thematicfunds, after adjusting for hidden exposures. We interpret alphas as measures of abnormal performance, rather than managerialskill. The findings suggest that thematic funds offer distinctive performance characteristics relative to traditional ones.