Thematic investing is an approach when a person is concentrating on investing in predicted long-term trends rather than specific companies or sectors. For example, instead of investing in different companies, that shows a promising future, a person concentrates on climate change topics and companies that fall into that category. Why might people want to choose this investing approach? This kind of investment approach helps people to take advantage of changes across entire industries, not just separate companies and opportunities created by technological, geopolitical and macroeconomics trends.
Thematic investing is a method where people try to identify significant opportunities and trends and invest in them, rather than investing in individual stocks or sectors. Thematic investing has a variety of themes, that focuses on different trends, such as digital economy, smart cities, food revolutions, climate change, autonomous technology and etc. Over the years, interest in thematic investing has been growing, as it helps to position investors’ portfolios for a long-term growth opportunity and capture growth from many different geographical areas and sectors, but concentrating on one major theme, that might be a mega-trend and bring important gains in the future. Also, it sometimes helps people to invest in what they actually believe in and care about.
Sector investing vs. Thematic investing
At first thematic and sector investing might sound similar and many people mix them up. The key differences between these two are, that sector investing distributes the investment funds into specific segments, like energy, healthcare, information technology and others. Thematic investing touches much more sectors to align with market opportunities.
How thematic investing works?
Although with the thematic investing the effort required to select companies people want to invest in is reduced, people still need to research the theme they are interested in, what are the opportunities of that theme, in which direction is it going, what the future might hold for it and what are the risks of investing in that theme. When people selected a theme, usually there are two ways to invest in it – either manually chose the companies and build a portfolio, or choose thematic investment ETFs (or do both).
Usually when creating a thematic portfolio strategy, people look at few factors:
- Long-term trends
Often, thematic investing focuses on mega-trends, disruptions in major industries, and sustainable investing. Often people choose to invest in themes that align with their beliefs and values. A good example of value-based thematic portfolio would be investing in woman-run companies or, for example, companies that take care of environmental sustainability.
There are several different themes for investing, probably the most common ones being:
- Environmental – people can choose to invest in companies that work on climate and environmental issues and help to reduce the effects of global warming and similar issues. These companies usually work in sectors such as energy and manufacturing. A few examples of such ETFs – are BlackRock Sustainable advantage, Parnassus Core Equity investor, Shelton Green Alpha Fund and others.
- Blockchain technology – these themes work on providing new innovations regarding cryptocurrency, NFTs and blockchain technology. A Few examples include – Bitwise Crypto Industry Innovators ETF, Siren Nasdaq NexGen Economy ETF, VenEck Digital Transformation ETF.
- Healthcare – these themes want to capitalize on the innovations in companies that focuses on healthcare solutions, like technology for vaccines or new treatments for cancer. Few examples – iShares Healthcare Innovation UCITS, Global X Health & Wellness Thematic, Goldman Sachs Human Evolution.
What are the benefits of thematic investing?
There are a few main benefits when choosing thematic investing:
- Sector independence – themes include many different sectors and aren’t limited to one sectors’ ups and downs.
- Reflects changing world – thematic investments not only brings innovation into the world, but actually can change it and people can be a part of that change.
- Potential higher returns – If the area you invest in through thematic investing performs well, the results for investors can be higher returns compared to other mutual funds.
What are the disadvantages of thematic investing?
As in all investing strategies, there are some disadvantages:
- Short-term trends – thematic investing focuses on following certain trends, but there is always a risk of chasing a short-term trend, which won’t bring investors long-term wealth growth.
- Too narrow – Thematic investment sometimes can be too narrow in assets. Diversification is an important strategy while investing since it helps to reduce risks. Some thematic portfolios are quite narrow and people who are investing in them, have a higher chance of losing the value of their investment since their portfolio is not diversified.
- Volatility – if the thematic investment is too narrow, its volatility of it can be high. Investors need to balance between identifying strong trends and maintaining a diverse portfolio.
What thematic ETFs does Fundvest offers?
- (ESGE) Lyxor MSCI Europe ESG Leaders UCITS ETF
- (EDMU) iShares MSCI USA ESG Enhanced UCITS ETF
- (RENW) L&G Clean Energy UCITS ETF
- (SNSR) Global X Internet of Things UCITS ETF
- (ECOM) L&G Ecommerce Logistics UCITS ETF
- (WCBR) WisdomTree Cybersecurity UCITS ETF
- VanEck Video Gaming and eSports ETF (ESPO)
- (XAIX) Xtrackers AI & Big Data UCITS ETF
- (ECAR) iShares Electric Vehicle & Driving Tech UCITS ETF
- (GNOM) Global X Genomics & Biotechnology UCITS ETF
- (LERN) Rize Education Tech and Digital Learning UCITS ETF
- (FOOD) Rize Sustainable Future of Food UCITS ETF
- (HEAL) iShares Healthcare Innovation UCITS ETF
- (SKYE) First Trust Cloud Computing UCITS ETF
- (BCHN) Coinshares Global Blockchain UCITS ETF
- (EFPX) First Trust IPOx Europe Eq Opp UCITS ETF
- (VVMX) VanEck Rare Earth and Strategic Metals UCITS ETF
- (ROAI) Lyxor Robotics & AI UCITS ETF
- (IQQQ) iShares Global Water UCITS ETF
- (DPGA) L&G Digital Payments UCITS ETF
- (ETLI) L&G Pharma Breakthrough UCITS ETF
- (CT2B) iShares Smart City Ifrastructure UCITS ETF
- (CAVE) VanEck Smart Home Active UCITS ETF
- (SMAFY) Amundi Smart Factory UCITS ETF
- (BLUM) Rize Medical Cannabis and Life Sciences UCITS ETF
- (INFR) iShares Global Infrastructure UCITS ETF
- (IUSB) iShares Global Timber & Forestry UCITS ETF
- (GDIG) VanEck Global Mining UCITS ETF
- (VOOM) Lyxor Global Gender Equality (DR) UCITS ETF
- (LI7U) Global X Lithium & Battery Technology UCITS ETF
- (OSX4) Ossiam Eu ESG Machine Learning UCITS ETF – 1C EUR
- (BETS) Fischer Sports Betting & iGaming UCITS ETF
- (LUXU) Amundi S&P Global Luxury ETF