Thematic Investing 101: What To Invest For the Directionless

Thematic portfolios and trends

There are many ways you can invest. For those interested in a common idea, thematic investing involves investing in funds or a bunch of stocks belonging to a particular theme. For example, cyber security, augmented reality, electric vehicles, renewable/clean energy, or even growing trends and ideas.

However, trends can be short term, long term or seasonal. It is important to understand that and follow the trends to identify their growth, potential economic benefits and money-making opportunities.

While you can do this independently, a fund manager identifies themes by spotting relevant companies via their business model, future plans, investments and holding in another company. From here, the fund manager can shortlist funds and stocks with the strongest affinity to that central theme. This helps in the identification of potential high growth stocks.

There are many themes which one may choose. A theme such as online tv streaming or online entertainment which may include companies with direct and indirect exposure to online streaming services.

Keeping this theme in mind, one can go about deciding which stocks to include in their thematic basket by looking at a few parameters in mind :

  • The Idea
    The theme or idea should be clearly visible and evident. This can be supported by using google trends, regular news update, and popular mentions on social media (hashtags).
  • Research 
    Research should be done regarding the demographics and interests of people who directly relate to, or are an interest group for that idea/theme. If that persona or target segment of the market is actually using that service, then the change in their interests would also affect the popularity of the trend/theme directly.
  • Shortlisting the Stocks 
    The companies who are the most profitable and are directly related to that central theme or idea should clearly be a part of the portfolio or the investment basket.

Thematic Trends To Look Out For in 2020

The beauty of thematic investing is the endless ideas and trends to invest in. On that note, here are some of the popular themes that might be big next year

Online Entertainment / Streaming Services
The growing popularity of IoT devices among end consumers like smart TVs and casting/streaming devices will fuel the video-streaming industry. It would also enable one to load full-length movies in a matter of seconds. With that in mind, this has also given rise to a major shift in the advertising market. The advertisers are cutting spending on TV advertisements in favour of cheaper and effective advertisements on video-streaming applications/websites.

ABI Research says that video’s share of global mobile traffic will increase to 74% by 2025 from 60% in 2018 when 5G is rolled out in full around the world. 

Online Gaming
According to The Verge, online mobile games like Player’s Unknown Battleground (or more popularly known as
PUBG) is one of the most played online games today with over 200 million users. This could hint towards Massive Online Multiplayer (MMO) games where people assume and online persona/identity and battle with each other in a virtual world is a booming trend.

The most to benefit from MMO games are chipmakers and graphic cards or driver makers and game developers.

Wearable Technology
International Data Corporation’s (IDC) research has shown that wearables total shipment volumes are expected to reach
190.4 million units in 2022, with the market growing to almost $70 billion in 2025, up from $20 billion in 2015. Meanwhile, healthcare wearables global shipment is expected to reach 97.6 million units annually by 2021, accounting for $17.8 billion in yearly revenue – highlighting that wearable tech might be going to be more than just an accessory in the coming years.

Some top companies that have direct exposure to wearable technology are mobile phone brands who have developed their own activity trackers.

Bottom Line

It is almost limitless as to how many investment themes one could create based on trends and research. To start your thematic investing journey, Trendlink has an exhaustive list of thematic portfolios made with over 17,000 stocks, ranging from 3D printing to Electric Vehicles. 

Staying alert of upcoming global trends, doing extensive research on companies and creating links between different data points, are key to thematic investing.

Written by

Cheryl Toh

Last updated on

December 4th 2019, 5:36 pm

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