When most people think of investing, the first thing that comes to mind is probably sector investing or asset class investing. However, global thematic investing is a different approach that is more forward-looking than either of these methods. Here is a brief introduction to thematic investing.
Thematic investing – what is it, and why should investors care about it?
Thematic investing has some similarities to sector investing. Both approaches offer targeted exposure to carefully selected areas of the market. However, in thematic investing, rather than focusing on sectors, investors study themes and trends across various sectors and asset classes. The aim is to understand these trends and try to predict how they will move in the future and use this knowledge to drive investment. Thematic investment specialists analyze long-term economic, political, social and technological trends to inform their investment decisions. Global thematic investment is sector independent, cutting across national boundaries and traditional sectors. After identifying a particular theme, a fund manager will choose companies and assets based on their exposure to or involvement with the themes in question.
Why does all this matter to you as an investor? Thematic investing comes with several benefits that should be of interest to both experienced investors and those making their first forays into the global markets. Thanks to the deep research the approach requires, investors improve their understanding of value and risk, making them better and more successful investors. In addition, the thematic approach enables them to target competitive returns by investing in hot spots or discontinuities.
How thematic investing works
To engage in thematic investing, an investor or fund manager begins by identifying a theme with outstanding growth potential. Then, with plenty of research, they find a way to clearly define and express this theme before mapping products and services identified with that theme. They then calculate the extent to which the identified companies are exposed to the theme in question and use these calculations to create an investment portfolio, with each stock weighted according to the individual asset’s thematic relevance and exposure.
Where do we see the strongest themes?
The starting point when looking for investment themes is to look for promising trends. For example, an investor may focus on the rising influence of cryptocurrencies or healthcare technology development after the COVID-19 pandemic. The next step is to study the trend and determine whether it is structural in nature and whether it is sustainable – to ask how far into the future it is likely to reach and what impact it will have on the global economy. After studying the trend, if it shows promise as a sustainable long-term investment theme, it will probably as a strong basis for a thematic investment portfolio.
Nour Private Wealth (NPW) Wealth Advisors are experienced with knowledge spanning all fields of global investment and the various approaches to it. For more information on Global Thematic Investing or any questions regarding the protection and expansion of your wealth, contact us at 1.855.545.9090 or by clicking the following link: https://www.npw.ca/contact-us/.