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.
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.
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:
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:
There are a few main benefits when choosing thematic investing:
As in all investing strategies, there are some disadvantages:
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