We all know about investing in asset classes, regions and countries, sectors and industries, and of course, individual companies. However, there is a rising trend of investing along the lines of themes. While thematic investing has been around for quite a while, there is a build-up of interest around it in recent times.
So, what is thematic investing? Pulling out from the CNBC news site, thematic investing is “…buying stocks or other investments that may benefit from a particular trend”1.
Traditionally, investments are usually based along the lines of asset classes and so on as described in the first paragraph. For thematic investing, however, it tends to straddle across these traditional lines and it can be very focused on the theme in particular. For example, investing on the theme of fintech involves not only the technology and financial services sectors, but also across different countries where there are companies in this field. Fortunately, we have exchange traded funds (ETFs) to cater to such investments. There are many thematic ETFs to select from, and most follow an index, though there are actively managed ones that do not, e.g., some of the ARK ETFs.
There are many themes that you can invest in, such as the aforementioned fintech, green energy, cybersecurity, biotech, etc.
The Bedokian’s Take
Thematic investing forms part of an active Bedokian Portfolio strategy, which I had named it as “the next big thing”. I had shared in my eBook on how to go about it2, and had identified three fields to go into back in 2017: cybersecurity, payment solutions and alternative energy.
It is an interesting area to venture into, but if you are a beginner investor and/or have a limited capital, it is preferred that you start off with the asset classes first, rather than jump straight into thematic. It is important to start off a portfolio consisted of the different asset classes to capture the benefits of diversification. Once you got your feet wet enough and build up enough investible capital, you can then consider allocating part of your portfolio to thematic.
1 – O’Brien, Sarah. ‘Thematic investing’ has skyrocketed. Here’s how to capitalize on trends that could shape the future. CNBC. 29 Jun 2021. https://www.cnbc.com/2021/06/29/thematic-investing-has-taken-off-how-to-capitalize-on-trends-.html (accessed 10 Oct 2021)
2 – The Bedokian Portfolio (2nd Edition), p153-154