Written by: Penny Anthem Staff
To put it in the simplest terms, Thematic investing is choosing Investments based on a fairly broad specific theme or motif
Most definitions include the concept of choosing industries from a top down level, which basically means choosing a broad concept and focusing some of your portfolio in that area. Common examples of themes are clean energy, social networking, infrastructure, online retailers..etc.
Thematic investing certainly isn’t new, but it’s gaining popularity amongst the younger generation. Lets explore some of the reasons as why this is picking up momentum and probably not going to go away.
Align Values with Investments: For the ethical investor, thematic investing allows you invest in companies that share similar ideals. For example, environmental advocates can out their money where their values are. Think renewable energy or natural resources. One might choose to invest in solar or wind energy companies or funds based on water purification & distribution.
Familiar ideas: For a newer investor it’s less intimidating to choose investments based on a familiar concept. Lets look at social media. Generation Y, Millenials, and Generation Z are all comfortable with Facebook, Twitter, & Snapchat. That recognition and familiarity may possibly create a sense of ease when investing in these companies.
It is arguable easier to understand Facebook stock than perhaps an obscure biopharmaceutical company. This allows investors to gain a sense of understanding and belonging within finance.
Possible Tailswinds: As a result of this broader umbrella, one can attempt to choose industries they think will continue to grow. Examples of this might be E-commerce or infrastructure. If one thinks that infrastructure is liking to be a growing industry for a foreseeable amount of time- they could invest in timber, construction machinery companies, toll road developers..etc. It’s a way of saying, what’s popular and what will continue to be popular.
Thematic investing is easier to digest for many. Instead of researching different companies or funds, one can look into different ideas or concepts to help hone in their portfolio selection. The next time someone brings up thematic investing, you’ll have a better understanding that they are just referring to investing based on concept, strategy, or sector.