You may have heard the term ‘thematic investing’ being thrown around by business associates, family members or wealth advisors, but how much do you know about it? Thematic investing can be a very rewarding approach to building and protecting your wealth, provided you have a good understanding of the concepts and practices that drive it. As with any other investment strategy, it is vital that you do your homework before deciding where to put your money. To start with, here are the simple answers to the questions of what thematic investing is, why you should invest thematically and how to make thematic investments.
Thematic investing is a strategy that involves aligning the selection of assets with one or more broad economic or political themes. The themes could relate to specific sectors, but more often, they involve long-term, wide-ranging political and economic trends. An investor or wealth manager will start by identifying a macro-level trend. The aim is to understand these trends and try to predict how they will move in future. They then use this knowledge to inform their investment decisions.
As for why you should choose this approach, there are three main advantages. Thematic investing gives investors exposure to long-term structural trends, allowing for an approach that is both tightly focused and open to diversification across a variety of sectors, businesses and products that are connected with the chosen theme. Secondly, with thematic investing, you can position your portfolio in relation to long-term risks and business models, giving you a long view of future economic growth and putting you in an excellent position to benefit from it. Finally, the chosen themes can be quantified, analyzed, and managed. They are wide-ranging in nature, allowing for more choice in terms of assets.
How to make thematic investments
With this basic knowledge, how does one go about making thematic investments? Investors and wealth managers begin by identifying a theme with considerable, long-term economic significance. This theme is then carefully studied and analyzed to determine whether it will be the driver of future economic growth and would thus provide a sound basis for investment decisions. Next, the investor searches for companies, assets, and entire sectors that are closely linked to the chosen theme and its projected growth path. An investment portfolio is then built up, composed of a selection of those companies and other assets. If the research and projections related to the theme are correct, the portfolio will be in an excellent position to generate above-market future growth, as the theme develops.
Nour Private Wealth (NPW) is a Canadian company with a team of wealth advisors servicing clients across seven provinces. For more information on thematic investment and other forms of wealth creation and preservation, contact us today and speak to one of our wealth advisors.
