Why Your Portfolio Should Be Thematic

Thematic investing has grown in popularity over the years when it comes to investing in the stock markets. Through thematic investing, you get to identify large opportunities, or invest in your preferred ideas and/or current trends without having to do detailed fundamental and technical research on individual stocks. 

For example, if a fund is built on an infrastructure theme, it might invest equities in construction companies, cement companies, steel companies and the other companies that are related to the infrastructure sector.

According to Fidelity, thematic investing follows certain social, economic, corporate, demographic, or other themes that are popular in society. 

“The opportunity comes when more people believe in the same themes and investment is driven in the direction of these companies. The shift of capital ultimately could drive superior performance in a thematic portfolio if the companies in the indexes benefit from the business,” it said. 

On that note, here are the reasons why your portfolio should be thematic. 

Access to Hundreds of Companies with a Single Trade
Traditionally, thematic investing has been limited to more sophisticated institutional investors due to the research required to pinpoint companies with high exposure to a theme and the need to access a variety of international markets for themes that are global in nature. 

Thematic ETFs track indexes that take care of the security selection part of the process and can provide access to a broad set of companies around the world with exposure to a particular theme.

Unconstrained Approach

Breaking out from the grid-like method of asset allocation, its approach to geographies and sectors have low correlations to other portfolio strategies. This can be particularly useful for investment managers seeking to diversify sources of growth.

Thematic investing means looking at the bigger picture, where you’re investing based on big global economic trends rather than short-term economic cycles. 

Invest In Your Interest
When you invest in a thematic portfolio, you are putting money into ideas and trends that are already familiar and exciting to you. Having in-depth knowledge or first hand experience in a particular trend can drive your ability to make smart investment choices. 

Meanwhile, doing research on that particular theme would come naturally and will strengthen your position and improve your ability to customise your own portfolio.

Being able to invest in a theme that personally drives you is a great pull factor, as you would have a higher interest in your performance. 

Less Affected by Short-Term Economic Cycles
Thematic investing means looking at the bigger picture, where you’re investing based on big global economic trends rather than short-term economic cycles. 

What this means is that companies which are supporting such important, long-term changes will usually suffer the least from regional economic downturns, as their results outweigh market trends.

How To Choose A Thematic Investment

Other than taking your values and passion into consideration, think of trends that would change the world in the next decade or so. Global X recommends to identify structural shifts, and finding companies with high exposure to those shifts. 

Not only that, you’d need to consider timing the theme “so as to enter early enough that earnings and forecasts have not fully priced in the theme’s potential.”

Meanwhile, Gartner has recently identified the Top 10 Strategic Technology Trends for 2020 –  this could be your start to thematic investing:

Source: Gartner
Written by

Cheryl Toh

Last updated on

October 23rd 2019, 11:01 am

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