Thematic investing is a relatively new investing style made popular by Blackrock. It’s a different type of investing with a different focus from traditional investing. It’s geared towards helping investors find long-term investing trends that will fuel their investment strategy instead of focusing on individual investments. Let’s learn more about thematic investing, how it works for investors, and what makes this strategy so unique.
- Thematic investing is an investing style and methodology that focuses on identifying trends that will have long term market or sector impact
- The key to this type of investing style is to have a long-term approach to the investment selection and to discover untapped trends
Thematic Investing Explained
Thematic investing is an investing methodology that focuses on finding long-term trends to make investments. Instead of investing in specific sectors or publicly traded companies, thematic investing aims to discover new and upcoming trends that will perform well in the next 10 to 15 years. Unlike focusing on diversification like factor investing, thematic investing looks for opportunities that are not fully developed yet.
This approach requires investors to have a longer-term approach to specific sectors or investments with a more patient investing methodology. In addition, investors have to be ready to enter into investments when there are significant shifts in a specific industry that present a valuable opportunity.
To understand how thematic investing works, it’s important to explore the philosophy and what kind of market shifts are suitable for this style of investing. Having been pioneered by BlackRock, thematic investing focuses on identifying undervalued opportunities that will become trendy. Below are some of the unique trends and investing philosophies that fuel thematic investing. They include:
- Migrations into developing cities
- Resource scarcity (computer chips)
- Supply shortages in particular sectors
- Large changes in purchasing power
- Developments in low-population cities
- Changes in dietary choices
These changing themes in thematic investing aren’t limited in any capacity. This is part of what makes thematic investing so unique. Trends are happening all around the world and finding a trend that fits the mold of your risk appetite can present a great investment opportunity. If you find a trend that you believe has serious long-term potential, it can help you position your portfolio to take advantage of an opportunity other investors wouldn’t consider.
Thematic Investing Criteria
Apart from the broader investing philosophies and trends that thematic investing focuses on, there are investing criteria that thematic investing uses inside asset classes like stocks, bonds, mutual funds, ETFs, and commodities. This includes criteria such as:
- Long-term sector trends
- New technology breakthroughs
- Valuation ( finding undervalued companies)
A changing world can present massive opportunities for investors who are focused on the thematic investing style. Technological changes in industries, shifts in investing asset classes, and unique industries can open up new trends for investors to participate in.
Is Thematic Investing Risky?
Thematic investing can pose some risks if you haven’t thoroughly evaluated the investment that you plan on going with. When individual investors deploy too much capital into a thematic investment and don’t diversify enough, the returns can be impacted if the investment doesn’t perform.
It’s also worth mentioning that catching trends is no walk in the park. It takes serious insight and skill to find a trend that invests in it early enough to see long-term capital appreciation. This is especially true with the competition involved with investing in general.
Sector Investing Vs. Thematic Investing
Thematic investing is very similar to sector investing. However, they are slightly different in a few ways.
Sector investing involves companies that fall into specific economic sectors of the economy. This can include sectors such as energy, technology, healthcare, financial, etc.
Whereas, thematic investing can invest in different sectors at a specific time when the market is heavily discounted or poised for growth. This can be due to changes occurring in the global economy, new developments in technology, and shifts in the supply and demand of commodities.
Thematic Investing Blackrock Funds
As previously mentioned, Blackrock has shaped the thematic investing landscape and has been at the forefront of making it more accessible to investors.
Blackrock has created a balanced approach to these types of investments with different types of funds for all levels of investors. They range from:
- Active funds
- iShares index funds
For further information on how you can get started with these alternative investments, check out their prospectus and a breakdown of these funds.
The key to this type of investing style is to have a long-term approach to the investment selection and to discover untapped trends
Thematic Investing Example (BGF – Fintech Fund)
The BGF Fintech Fund from Blackrock features a unique investment approach.
This fund aims to maximize the return on your investment through a series of capital growth and income on the fund’s underlying assets. The fund consists of 70% weight in equity securities of global companies whose main economic activity consists of research and development, production, and distribution of new technology used in the financial services industry.
For more information, check out the full details of this fund in the link above.