Thematic investing offers several potential advantages to the investor that other investment approaches do not. With thematic investing, one can invest in long-term trends and themes of particular interest. It is more concentrated than asset class or sector-based investing, allowing an investor to focus closely on the desired exposure. While factor investing is historically based, with investors analyzing past trends to make their decisions, thematic investing is more forward-looking. It aims to predict developing social, political and economic trends and capitalize on them, with investors always looking to the future to predict where these trends will take them and their money. There are two primary benefits that arise from thematic strategies.
1) Business for the future
With its future-based perspective, thematic investing enables investors to maintain a forward-looking approach to their business and investments. Instead of investing in specific sectors and commodities and betting on the hope that their future developments will be as good as, or better than their past performance, investors can identify wide-ranging trends that are likely to generate strong future growth in a variety of interrelated sectors. Investors thus remain on the cutting edge of future growth and innovation, and place themselves in a prime position to reap the benefits.
2) Concentrated portfolios
Thematic investing enables investors and wealth managers to build portfolios in which funds are concentrated across a set of closely interlinked investment targets. While diversification is important, concentrated portfolios also offer several key benefits. Concentrated portfolios include a smaller number of high-quality assets, rather than a larger number of assets of varying quality. The higher the degree of concentration, the closer an investor can get to surpassing broader market performance. However, the success of such an approach depends on strong knowledge of the assets in question, together with a carefully selected mega-trend and well-strategized long-term investment strategy.
Nour Private Wealth (NPW) is a Canadian company with a team of wealth managers servicing clients across seven provinces. For more information on thematic investing and other forms of wealth creation and preservation, contact us today and speak to one of our wealth advisors.