Investment Professionals

Thematic investing for your clients’ portfolios

Investing in thematics is a newer concept but can expose your clients to some of the major socioeconomic, environmental and technological themes of our times. For many financial advisers, the question arises of how exactly to use such investments and allocate to them within a portfolio.

What is thematic investing?

Thematic portfolios follow a top-down approach to investing. They 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.

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.

Access to thematic investments

Typically, advisers might consider three different options for their clients.

  1. Direct shares in companies associated with a theme.

  2. Actively managed funds.

  3. Exchange traded funds (ETFs).

Each carries different risks and benefits, along with varying fees, minimum investments, brokerage, tax implications and W-8 BEN forms in some instances.

While still carrying investment risks such as market or liquidity risks, ETFs tend to be the lowest cost and most accessible option for investors given the potential for exposure to many companies and they usually cost less than actively managed options.

How to allocate to thematic investments

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.

The size of the allocation may vary depending on how the investor chooses to use it, ranging from 5-10% per investment depending on factors such as existing portfolio composition, risk tolerance, needs and goals.

Thematic investments can help offer clients the chance to be an active participant in the major forces driving human progress. They can also be the opportunity for clients 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 financial advisers to consider their suitability and fit for their clients’ needs, goals and portfolios.

For more information on using thematic investments, please speak to ETF Securities.

Client Services

Phone +61 2 8311 3488

Email: infoAU@etfsecurities.com.au

1 https://www.stockbasket.com/investmans-playbook/thematic-investment-ideas

2 https://publications.csiro.au/rpr/ws/v1/download?pid=csiro:EP126135&dsid=DS2