investing

Getri
August 3
Basics of Investing

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.

Definition

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
Ideas
Beliefs
Values
Disruption

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

investing

Getri
August 3
Basics of Investing

Most investments don’t have a guaranteed rate of return. All investments involve some degree of risk, some are considered riskier and others safer investments. The value of investments is influenced by many factors, such as economic and market conditions, government policy, interest rates, currency movements or inflation.

Why would anyone invest?

Over the longer term, the returns on investments are significantly higher than the rate of interest on cash. Investments made today are meant to pay rewards in the future. Investors also try to protect themselves against different types of risk when buying securities. At the moment we are living in a world where inflation is higher than what is considered “average” or “normal”. That means keeping money in your bank account is actually not a very good idea.

In order to build your wealth successfully, it’s important to have a certain strategy and familiarise yourself with potential risks. Each specific investment approach and product will have its own specific risks and those risks will vary. These are some types of risks. This is not an all-inclusive list.

Systemic risks are coming from the biggest companies in the world and if something happens with them then the ripple effect could affect almost all of the economy. For example, the 2008 global financial crisis resulted in almost all types of investment falling in value when the companies considered “too big to fail” started to fail. Governments use systemic risk as an excuse to intervene with the economy and limit the ripple effect when and if needed. In 2008 without the bailout of AIG, the ripple effect would have caused the collapse of many other financial institutions.
Non-systematic risks apply for risks that are specific for a certain company or sector. These risks can be reduced by investing in different sectors. An example of a non-systematic risk is a new provider in the market or a change in the regulatory framework.
Liquidity risks are the risks to a firm’s ability to pay back its debt. It’s always a good idea to check company’s cash flow and outstanding debts. Make sure they are generating enough cash to pay for all the bills or are planning to reach that point in sometime near future. When a company reaches a point where they don’t have enough available funds to cover short-term debts they are experiencing liquidity risk
Exchange rate risks are type of risks that come with overseas investments and foreign currencies. These risks are considerably higher when investing in emerging markets and are not fully avoidable. It is possible to mitigate these risks using currency futures or other similar financial products.
Inflation risks mean that over time money is losing its value. Inflation is a decrease in purchasing power – to make it clear 100 USD buys you less today compared to 3 years ago. For investors, fixed bonds are considered to be especially susceptible to this risk.
Interest rate risk is the possibility to decrease the value of your fixed-income investment if the overall interest rates go up. Interest rates affect many other investments but bonds are in the biggest risk. Often fixed-income investments offer a higher return to lower this risk.
Credit risks cover the risk that comes with the ability of the issuer to repay the funds or interest rate. This mostly applies for investments that promise some form of guaranteed payments. These kinds of securities are usually rated by credit agencies and the lower the grade, the higher the credit risk.
Social, political and legislative risks are types of risks that follow human behaviour or decision-making. For example, there could be a change in regulations for banks or a trading embargo with certain countries and their economy would suffer. Lately, the world is preparing to move towards green energy and this is a major change in the social sense that affects many sectors.

Risk and diversification

The most basic and effective strategy to minimise risk is diversification. Diversification means that you should not invest all of your funds into one certain investment but spread it around over multiple different investments. If one investment goes bad then you have risked all of your funds on one deal. But if you spread your funds on multiple different investments then you are better protected and might find the next big winner more easily. One of the most well-known comparisons is that it’s smart to invest in sunglasses and umbrellas. When it’s raining you’ll make money on umbrellas and when the weather changes and the sun comes out, then people will need sunglasses. This is the simplest example of diversification.

Diversification also means you should look toward different sectors. Let’s say for example that I invest all of my money into airlines. It does not matter what airline stocks I’m buying but if travelling is hindered by corona for example then all of the airlines will be losing their value. But if I try to diversify my portfolio and add energy and gaming investments for example then these 2 sectors are not that intertwined with airlines and won’t be in danger of the same risks. I have protected my investments and am not fully dependent on only tourism.

Diversification doesn’t ensure gains or guarantee against losses, it does provide the potential to improve returns based on your goals and target level of risk. There are always risks when making investments but it is possible to minimise most of the risks when you have the full picture of potential issues

investing

Definition

Sector investing vs. Thematic investing

How thematic investing works?

What are the benefits of thematic investing?

What are the disadvantages of thematic investing?

What thematic ETFs does Fundvest offers?

investing

Why would anyone invest?

Risk and diversification

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