Outlook
4 min read 17 Oct 24
Thematic investing really just means investing in the big trends hoping to shape the future. It focuses on both anticipated and emerging long-term themes, rather than individual companies or sectors. It’s aim is to try and make sure investors’ money is well-positioned to benefit from the social, technological and economic themes hoping to change the course of entire industries.
Let’s take a look at what thematic investing is and how it works.
Thematic opportunities can be found in companies of any size and in any sector, like technology, pharmaceuticals and energy. They’re not restricted to specific regions either.
One appealing feature of this type of investing is the fact that it spans a wide range of industries and sectors, for example;
Equities (shares in a company) are considered to be the most common way to invest thematically, and it’s done through the use of Exchange Traded Funds (ETFs). These are investments that ‘pool’ your money with that of other investors. They’re designed to track or replicate the performance of a particular index, in this case a thematic index or the money is invested in a fund that’s actively managed by experts.
The aim of thematic investing is to identify the investments that are most likely to have their returns impacted by specific themes. Fund managers tend to look for businesses providing solutions to some of the biggest challenges we’re facing today, and businesses where the impact they have can be measured.
Environmental solutions and technology for example, are about alternative energy and developing more energy efficient components. Investing in the circular economy theme is about reducing waste and reusing resources. Social purpose concentrates on better health, better working conditions and social equality.
Let’s take the theme of environmental solutions as an example. Imagine a business has developed and patented a new, cost effective coating to help keep solar panels cleaner for longer. Potential demand from customers could mean the value of the shares in that company could benefit positively over the long term. Their innovation could positively impact companies involved in its supply chain as well as the company itself. Those businesses sourcing and refining the raw materials they need for manufacturing, as well as those involved in the means to supply those materials to them.
So ultimately, they would be attractive to investors. But of course, thematic investing also helps investors to avoid assets and companies that might be negatively impacted too.
Investing themes can also offer flexibility and choice across industries. Looking at themes rather than specific asset classes or sectors has the potential to offer up any number of opportunities for investors to grow their money. So depending on your investment objectives and appetite for risk, it could prove worthwhile to look beyond the traditional, and consider thematic investments. The value of investments can go down as well as up so you might not get back the amount you put in.
The views expressed here should not be taken as a recommendation, advice or forecast. Before making any investment decisions it’s always important to do your research and think about the risks you are willing and able to take.
If you’re unsure about any aspect of investing you should speak to a financial adviser. If you don’t already have an adviser and would like to find out more about the different types of investment and what might be right for you, you can find a financial adviser that’s right for you on our ‘Get financial advice’ page.