What is thematic investing?

By Cutcher & Neale Accounting and Financial Services - July 19, 2021

If you observe your daily life carefully, you will notice there are many products or services that are closely tied to your routines, and perhaps to a million people’s lives across the globe.

We also live in a world that is rapidly changing. Thanks to changing consumer preferences, and disruptive innovation, there has been a huge paradigm shift. So, how can you harness these themes and changes into successful investing? Through thematic investments.

Thematic investing focuses on powerful, long-term global trends which are transforming the world and creating huge investment opportunities. Portfolios are then positioned to benefit from those forces, irrespective of the ups and downs of current or future economic cycles.

If the themes are as powerful as we believe them to be, and our research demonstrates they will be, it is likely they will outperform the broader indices given the changing nature of demand that they represent.

The benefits of thematic investing include:

  • Exposure to long-term structural trends
  • Positions portfolios relative to long-term risks and stranded business models
  • Exposure to several themes that can be quantified, analysed and managed.

 

Thematic investing means that you are not constrained by index weightings for stocks, sectors and even regions and can identify and invest in those companies best able to grasp the opportunities in the powerful, long term global themes that we have identified.

The S&P500 is a great example of where there are benefits of strategic, thematic investing. The S&P500 is an index that represents the 500 largest companies in the United States of America today. This index highlights companies that have helped to build their country to where it is today, such as railroads, oil miners and brick and mortar banks, through to companies that are working to build their country for the future, such as electric vehicles, cashless transactions and cloud computing. There are advantages to investing in the latter themes with growing tailwinds, while limiting your downside in the former themes that have big challenges ahead.

 Active investment is also preferable, meaning investing money directly into world markets with a long-term investment outlook and continuously monitoring activity. This differs from index investing, which uses a computer algorithm to buy and maintain the like for like makeup of certain market segments, such as the largest stocks in an economy. And it differs from exchange traded funds (ETFs) in that you are the actual owner of the underlying shares for maximum transparency, rather than the owner of a unit in an investment fund that can be opaque about what you’re buying into.

In summary, our investment philosophy is that with active, thematic investing we can increase our exposure to where the money is heading and reduce our exposure to where the money is leaving, with the intent to outperform the indices and reduce our risk of underperformance.  

At Cutcher & Neale Wealth Management, we are both your fund manager - investing your money daily - and your contactable direct investment adviser.

Please reach out if we can be of any help with your wealth management goals.

 

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