Thematic Investing

Thematic investing is an investment strategy that focuses on identifying and investing in companies that are positioned to benefit from long-term trends that are transforming the way we work and live.

These trends, which can be technological, demographic, social, or environmental in nature, are expected to have a significant impact on the global economy and the businesses that operate within it.

Thematic investors seek to identify and invest in companies that are well-positioned to take advantage of these trends.

This may involve identifying companies that are at the forefront of technological innovation, that are well-suited to meet the needs of changing demographics, or that are poised to benefit from social or environmental trends.

Thematic investing can be a long-term strategy, as the trends that drive it may take years or even decades to play out.

This means that thematic investors may need to be patient and willing to hold onto their investments for an extended period of time. (This is true, of course, with most investments intended to be investments rather than trading vehicles.)

Thematic investing can be a way for investors to capture the growth potential of companies that are well-positioned to benefit from major shifts in the global economy.

It can also be a way for investors to align their investments with their values, as many thematic trends are driven by concerns about sustainability, social responsibility, and other issues that are important to many investors.

Key Takeaways – Thematic Investing

• Thematic investing involves investing in companies and industries that are part of a broader trend or theme, such as clean energy, e-commerce, or healthcare innovation.
• Thematic investing can provide opportunities for investors to benefit from long-term structural changes in how we live and work, and can potentially lead to higher returns than traditional investment strategies (e.g., by avoiding “buggy whip” businesses and focusing on where the world is apparently going).
• However, it is important to carefully research and evaluate companies and industries before investing in them, as there are potential risks associated with thematic investing, such as concentration risk and the potential for a theme to become overhyped or oversaturated.

Thematic Investing Examples

Themes might include:

• Artificial intelligence and machine learning
• Demographic shifts
• E-commerce and digital payments
• Environmental, social, and governance (ESG) investing
• Future of Transport
• Fintech
• Digitalization
• Automation and Robotics
• Agribusiness
• Digital Security
• Consumer Growth in Emerging Markets
• Timber and Forestry
• Water Investments
• Healthcare Innovation

Artificial intelligence and machine learning

This thematic investing example refers to the use of artificial intelligence (AI) and machine learning techniques to automate and improve various processes and tasks (even trading).

Companies that are involved in developing and implementing these technologies could potentially benefit from this trend, as AI and machine learning are expected to play a significant role in the future of many industries.

Demographic shifts

This refers to changes in the demographics of a population, such as changes in age structure, immigration patterns, or birth rates.

For example, a company that is able to effectively target and meet the needs of an aging population might be well-positioned to benefit from this trend.

E-commerce and digital payments

This pertains to the growth of online shopping and the use of digital payment methods.

Companies that are involved in e-commerce or digital payments, such as online retailers or payment processing companies, could benefit as these technologies continue to grow.

Environmental, social, and governance (ESG) investing

ESG refers to the practice of considering environmental, social, and governance factors in investment decisions.

An increasing number of investors are looking for investments that align with their values and concerns about sustainability and social responsibility.

Future of Transport

The transportation sector is undergoing significant changes with the advent of electric and autonomous vehicles, as well as the growth of ride-sharing and other on-demand services.

Investing in the future of transport could involve companies that are developing or producing electric or autonomous vehicles, as well as those involved in the infrastructure needed to support them such as charging stations.

Fintech

Fintech refers to financial technology, and it encompasses a wide range of innovations that are disrupting the financial services industry.

This includes everything from mobile payment platforms and online lending to roboadvisors and blockchain-based systems.

Investing in fintech could involve companies that are developing and offering these types of financial technology products and services.

Digitalization

Digitalization has to do with the process of converting analog information, processes, and systems into digital formats.

This trend is driving changes across a wide range of industries, from media and entertainment to manufacturing and healthcare.

Investing in digitalization could involve companies that are enabling or benefiting from these changes, such as those involved in cloud computing, big data analytics, and other related technologies.

Automation and Robotics

Automation and robotics are increasingly being used in a variety of industries to improve efficiency and reduce costs.

This trend is likely to continue as technology continues to advance, and it could have significant implications for the labor market.

Investing in automation and robotics could involve companies that are developing and producing these types of technologies, as well as those that are using them to automate their operations.

Agribusiness

The agribusiness sector encompasses the production, processing, and distribution of agricultural products.

This sector is facing a number of challenges and opportunities, including the need to increase food production to meet the needs of a growing global population, as well as the impact of changing climate patterns on agriculture.

Investing in agribusiness could involve companies that are involved in the production, processing, or distribution of agricultural products, as well as those developing technologies to support the sector such as precision farming and plant breeding.

Digital Security

As more and more of our personal and professional lives move online, digital security has become a growing concern.

This trend encompasses everything from cybersecurity and data privacy to online fraud prevention.

Investing in digital security could involve companies that are developing and offering products and services to protect against these types of threats.

Consumer Growth in Emerging Markets

Many emerging markets, such as those in Asia and Latin America, are experiencing rapid economic growth and an expanding middle class.

This trend is driving increased consumer spending and a growing demand for consumer goods and services.

Thematic investing in consumer growth in emerging markets might entail companies that are targeting these markets with their products and services.

Timber and Forestry

Timber and forestry can be a sustainable investment, as trees can be replanted and managed for long-term production. The global market for teak wood is one example.

This sector is facing both opportunities and challenges, including the demand for sustainable forestry practices.

Investing in timber and forestry could involve companies that are involved in the production, processing, and distribution of wood products, as well as those involved in sustainable forestry practices.

Water Investments

Water is a critical resource that is becoming increasingly scarce in many parts of the world.

This trend is driving investment in water infrastructure, treatment, and conservation.

Investing in water could involve companies that are involved in the production, treatment, and distribution of water, as well as those developing technologies to conserve and better manage water resources.

Healthcare Innovation

The healthcare sector is undergoing significant changes as a result of advances in technology and our understanding of the human body.

This trend is driving the development of new treatments, diagnostic tools, and medical devices.

Investing in healthcare innovation could involve companies that are developing and offering these types of products and services.

It could also include companies that are using technology to improve the delivery of healthcare, such as through telemedicine or electronic health records.

Thematic investing: a 60-second overview

Thematic Investing vs. Impact Investing

Thematic investing and impact investing are two investment strategies that focus on specific areas or themes in the market, rather than individual companies or sectors.

Both strategies aim to generate financial returns while also achieving positive social or environmental outcomes.

Differences in Approaches

Nonetheless, there are some key differences between thematic investing and impact investing.

Thematic investing is a broad investment approach that focuses on specific themes or trends in the market.

This can include themes such as technology, sustainability, or demographic shifts.

Thematic investors seek out companies that are well-positioned to benefit from these themes, with the goal of generating returns from the growth of these companies.

Impact investing, on the other hand, is a more specific type of investment strategy that focuses on generating positive social or environmental outcomes, in addition to financial returns.

Impact investors look for investments that have the potential to create a positive impact on society or the environment, such as renewable energy projects or affordable housing initiatives.

One key difference between thematic investing and impact investing is the focus of the investment.

Thematic investing is primarily focused on financial returns, while impact investing is focused on both financial returns and social or environmental outcomes.

Another difference is the level of specificity in the investment strategy.

Thematic investing is a broad investment approach that can encompass a wide range of themes and trends, while impact investing is a more targeted approach that focuses on specific social or environmental outcomes.

Thematic Investing vs. Sector Investing

Thematic investing and sector investing are both investment strategies that involve focusing on specific types of companies or industries.

However, there are some key differences between the two approaches.

Thematic investing involves choosing investments based on specific themes or trends that are expected to shape the future.

For example, a thematic investor might focus on companies that are working on developing renewable energy sources, or on companies that are well-positioned to benefit from the growth of e-commerce.

The goal of thematic investing is to identify companies that are well-positioned to benefit from long-term trends and to build a diversified portfolio of investments around those themes.

Sector investing, on the other hand, involves focusing on specific sectors or industries.

For example, an investor might focus on the technology sector, or on the healthcare sector.

The goal of sector investing is to take advantage of trends and opportunities within a particular industry, rather than focusing on long-term themes.

One key difference between thematic investing and sector investing is the time horizon.

Thematic investing is typically a long-term strategy, as it involves identifying and investing in companies that are expected to benefit from long-term trends.

Sector investing, on the other hand, can be a shorter-term strategy, as it involves taking advantage of trends within a specific industry that may be more cyclical in nature.

Another difference is the level of diversification.

Thematic investing can be more diversified, as it involves building a portfolio of investments around a specific theme, rather than focusing on a single sector. For example, ESG investing can go well beyond just energy markets and go into any sector.

Sector investing, on the other hand, can be less diversified, as it involves focusing on a specific industry or sector.

Overall, thematic investing and sector investing are both valid investment strategies, and which one is right for you will depend on your investment goals and risk tolerance.

Sustainable Thematic Investing

Sustainable thematic investing is a type of investment strategy that focuses on companies and industries that are aligned with specific sustainability themes, such as renewable energy, environmental protection, and social justice.

The goal of sustainable thematic investing is to achieve financial returns while also promoting positive environmental and social impacts.

There are several different approaches to sustainable thematic investing.

One approach is to invest in companies that are directly involved in the development and production of products or services related to the chosen sustainability theme.

For example, an investor might invest in renewable energy companies that produce solar panels or wind turbines.

Another approach is to invest in companies that are indirectly related to the chosen sustainability theme but are still likely to benefit from the growth of that industry.

For example, an investor might invest in companies that supply materials or services to renewable energy companies.

There are also funds and index products available that allow investors to easily invest in a diversified portfolio of companies aligned with specific sustainability themes.

These products often use specific criteria to select companies for inclusion in the portfolio and may also exclude companies involved in certain activities, such as fossil fuel extraction or tobacco production.

Sustainable thematic investing can be an attractive option for investors who are looking to align their investment portfolio with their values and make a positive impact on the world.

However, it is important to carefully research and evaluate any investment opportunity and to understand the risks involved.

FAQs – Thematic Investing

What is meant by thematic investing?

Thematic investing is an investment strategy that focuses on long-term trends and structural changes in the economy, rather than on individual companies or sectors.

The goal of thematic investing is to identify and invest in companies that are poised to benefit from these long-term trends, which can include technological innovations, demographic shifts, environmental changes, and other macroeconomic factors.

Thematic investors seek to capitalize on the growth potential of these trends by selecting a diversified portfolio of companies that are well-positioned to benefit from them.

This approach to investing can be particularly effective for those who want to align their investments with their values or who are looking for opportunities to invest in the growth of emerging industries.

What is a thematic strategy?

A thematic investing strategy involves investing in companies or industries that are expected to benefit from long-term macroeconomic, technological, environmental, or societal trends.

These trends could be related to technological change, demographic shifts, environmental concerns, or other factors that are likely to have a lasting impact on the economy.

The goal of a thematic investing strategy is to identify and invest in companies that are well-positioned to capitalize on these trends and generate strong returns for investors over the long term.

This approach to investing can be contrasted with a more traditional, sector-based approach, which involves investing in a particular industry or sector of the economy.

Thematic investing can involve investing in a diverse range of industries, as the trends that drive thematic investing can cut across multiple sectors.

For example, a thematic investor might invest in companies that are developing clean energy technologies, as this trend is expected to grow in importance as concerns about climate change and the need for sustainable energy sources increase.

Alternatively, a thematic investor might focus on companies that are developing new technologies related to the Internet of Things, as this trend is expected to have a significant impact on a wide range of industries.

Conclusion – Thematic Investing

Thematic investing is an investment strategy that focuses on long-term trends or themes that are expected to shape the future and drive economic growth.

Themes can include technological innovations, demographic shifts, environmental changes, and other macro-level trends.

Investors who follow this approach seek out companies that are well-positioned to benefit from these trends, with the goal of capturing the long-term growth potential of these themes.

Thematic investing can involve a wide range of asset classes, including stocks, bonds, and real estate, and can be implemented through a variety of investment vehicles, such as mutual funds, exchange-traded funds (ETFs), and individual securities.