Thematic investing has been a long-standing strategy in the investment world, but there has been a growing interest in funds that focus on global trends in recent years. Thematic investing involves identifying shifts that are expected to disrupt established markets and industries, such as artificial intelligence or electric vehicles. The rise in sustainable and climate-related themes has also attracted investors who want to contribute to combating the global climate emergency. Many investors see these themes as potential sources of significant market returns in the future.
Some investment firms, like Newton Investment Management and Pictet, have made thematic investing a core part of their approach. Charles Schwab has also introduced thematic stock lists for investors who want to align their investments with their personal interests and values. This approach allows investors to identify major trends, also known as megatrends, and find companies that stand to benefit from them.
However, some may question whether thematic investing is merely sector investing disguised as something else. According to BlackRock, there is a clear distinction between thematic funds and sector funds. Thematic funds focus on structural growth or disruption, capturing shifts that will have a lasting impact on the economy, while sector funds are driven by short to medium-term views on the business cycle.
Investing in themes can be exciting because it involves looking beyond the immediate financials of companies and considering the broader impact on society and the economy. However, there are limitations to this approach. Predicting the future is challenging, and the world doesn’t always evolve as expected. Some investment themes turn out to be passing fads, and investor excitement can lead to investment bubbles. Investors should also be cautious of “themewashing,” where thematic funds end up being dominated by tech giants instead of providing adequate exposure to the desired theme.
Megatrends are the themes that are expected to have a significant impact on a global scale. These can include shifting demographics, the transition to a low-carbon economy, and advancements in technology. Aging populations, for example, present economic challenges but also opportunities in healthcare, automation, and leisure. The move towards a low-carbon economy is reshaping the demand for resources like copper, nickel, lithium, cobalt, graphite, and rare earth metals.
There are various funds available for investors interested in thematic investing. For example, the Aubrey Global Emerging Market Opportunities fund focuses on the rising power of emerging market consumers. ETFs have made it easier to invest in specific themes, such as artificial intelligence, robotics, or metals critical for future technologies. Fidelity’s Global Thematic Opportunities fund invests in a range of themes, including demographics, technology, healthcare, climate solutions, and clean energy.
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