Over the past two decades, 95% of all actively managed large-cap U.S. funds lagged the S&P 500®. As indexing has grown, many passive investors have benefited by saving on fees and avoiding active underperformance. Underperformance in the world’s largest equity market can be partly explained by factors such as the positive skewness of equity markets, the professionalization of investment management and cost. However, the dynamics driving the relative performance of active funds in more specific markets, including thematic funds, are less well understood. In this paper, we show that similar principles apply to the thematics space, along with some unique challenges.