Thematic investing exposes your portfolio to some of the major socioeconomic, environmental and technological themes of our times in a tailored way. So what does this actually mean and how can you use thematic investing in your portfolio?
Download the whitepaper, here.
What is thematic investing?
Thematic portfolios look at long-term macro trends, such as robotics and automation, and then use various screens and information sources to identify the companies or assets which support this trend through infrastructure or services. It can span several sectors or even asset classes, for example, a thematic investment in technology is likely to include companies within the technology sector as well as those in other sectors which access this trend, such as Amazon or Netflix.
Investment themes should be:
Universal rather than specific to just one company or region1.
Sustainable over longer periods, in some cases 20 years or more.
Based on known patterns and pressures2.
Some examples of well documented themes include virtual connectivity, ecommerce, biotechnology, the growth of the middle-class in Asia and climate change.
How to use thematic investing in your portfolio
Thematic investments are versatile and can be used in a range of ways, such as:
To complement the equities component in the core of a portfolio.
As a tactical tilt in the satellite portion of a portfolio towards trends or for growth.
As a diversification tool to broaden from typical assets in a portfolio core.
Whichever way investors choose to incorporate thematic investing within their portfolios, they should still consider the suitability for themselves and their portfolio, along with the risks involved - including risks that may be specific to a particular theme.
Investors can consider a variety of options to access themes in their portfolios, such as:
Direct shares in companies associated with a theme.
Actively managed funds.
Exchange traded funds (ETFs).
Investors should be aware of different fees, minimum investments, brokerage, tax implications and W-8 BEN forms for some investments. There are different risks and benefits to using any of these approaches.
Thematic investments offer investors the chance to be an active participant in the major forces driving human progress. They can also be the opportunity for investors to incorporate their passions within their investments, or even to have the potential of holding the ‘next big thing’ in a more manageable format. The increasing availability of tailored thematic investments in the market means they are more accessible than ever for investors to consider their suitability and fit for their needs, goals and portfolios.
For more information on using thematic investments, please speak to ETF Securities.
Phone +61 2 8311 3488