Understanding Thematic Investing

Understanding Thematic Investing

Executive Summary

Thematic investing has been getting lots of attention lately as the world’s entrepreneurs try to develop solutions to modern societies problems.  Below is a quick explainer on what thematic investing is and how it can work for investors.


What You Need to Know

What Is Thematic Investing?
Thematic investing is an investment approach that focuses on predicted long term, global trends.  These are also known as “Mega Trends”.  These mega trends are long term, influential trends that are seen on a global scale.  Thematic investors are looking for social and economic trends that will change the way people live their lives.  This strategy involves looking to invest in themes, rather than sectors or individual companies.
Thematic investing works a little backwards compared to traditional investment strategy.   Thematic investors or funds first identify a specific trend, then a sector, then companies.  They believe in the future and invest in mostly small/mid-sized companies that have the potential to become globally recognized names.
What are Themes?
By broad definition, a theme can be any idea that is going to have a global impact.   Some examples of different themes are:
  1. ESG Investing
  2. Disruptive Technology
  3. Infrastructure
  4. Healthcare


Advantages and Disadvantages
As with any investment approach, thematic investing has its pros and cons.


  1. Advantage: Provides Concentrated Exposure
Unlike a traditional mutual fund that may have a number of different sectors and companies in its portfolio, a thematic investment portfolio is targeted and focused.  This allows investors to truly grow their assets with the companies that the fund invests in.
  1. Disadvantage: Risk Levels
Thematic investors are not looking for tried and true companies.   They are typically looking at up and coming companies that have yet to make their impact. This can mean increased risk to investors. Thematic investing is usually best for investors who have a long-term investment horizon.
  1. Advantage: Can provide a hedge in a Portfolio
 Since thematic investors are focused on change and disruption, it can provide investors with a hedge against investments that are susceptible to downturns due to disruptive technology.
  1. Disadvantage: Higher Fees
 Thematic investment managers are heavy researchers and there is a lot of work and screening that goes into developing a thematic portfolio.  This is reflected in the MER’s of many of these funds.


The Bottom Line

Thematic investing is quickly gaining popularity and can provide the right investor with a wealth of opportunity.  If thematic investing interests you, make sure you discuss this with your advisor if your portfolio could benefit from this investment strategy.




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