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What Is Thematic Investing?

Thematic investing is a strategy that offers focused exposure on assets based around a specific objective or idea – putting your money into “themes,” if you will. These themes may be designed around research into long-term market trends, personal values and beliefs or social ideas.

Thematic investing, explained

Thematic strategies are similar to other types of investing in that you select assets that fit a particular box. In sector investing, for instance, you may target companies in healthcare, energy, or manufacturing sectors, while region investing puts your money to work in specific markets, such as Europe or Asia.

But unlike other strategies, thematic investing tends to include investments across sectors, industries, and valuation. For example, someone interested in environmentally friendly companies might invest in large- and micro-cap stocks in tech, manufacturing, and healthcare, thus cutting across both style and segment.

There are literally dozens, if not hundreds, of thematic investing strategies that range from broad, global ideals to granular beliefs. Sometimes, this is as simple as investing in emerging markets, where you buy into companies in countries like Mexico and Russia.

But thematic investing can also be based on personal values, leading some investors to build their own themes by handpicking their investments. But for those who don’t have the time (or money) to build a personalized portfolio, many brokers offer thematic funds based on hordes of data and research.

For instance, Fidelity offers classic themes like sustainable investing and outcome-oriented portfolios. But they also offer “Disruption” and “Megatrend” funds, too, which look a little different.

Similarly, BlackRock uses five “megatrends” to guide their themes, including climate change, shifting economic power, and technological breakthroughs. From these, they’ve created funds to address values such as Global Clean Energy and Digital Security.

What this means for you

Thematic investing provides a way for investors to identify and capitalize on global trends in a new way. Rather than walling yourself off, you gain exposure to long-term trends, ideas, and insights across sectors.

Plus, thematic investments give you a chance to capitalize on potential created by economic, technological, and social developments. By rallying around a theme or set of themes, rather than sector or style, you can follow your moral compass across asset classes and international borders.

Plus, thematic investing provides a more personalized strategy, as you can focus on assets that match your goals and interest and expose yourself to innovations that positively impact the world.

If you’re ready to put your money where your morals are, the first step is to decide which themes, values and ideas are important to you. Then, it’s time to research which ETFs and mutual funds follow these theme-based goals and outcomes, particularly those with a longer history or track record of positive performance and intelligent investments.

Keep in mind that you’ll also need to consider what mix of broad and concentrated funds is right for you. 

Typically, broad funds provide more diversity and a calculated balance between risk and return, though they may stray slightly from your desired values. However, while concentrated narrow their focus, they also tend to hold fewer securities at the expense of less diversity and increased risk against the broader market.

Broad funds are usually recommended for investors who want to invest with their morals while mitigating risk. But concentrated funds have their value, too, particularly as functional “building blocks” that can help construct a robust, well-rounded portfolio. And while many thematic funds are ill-suited to stand as the core of your investment portfolio, some broad funds provide enough diversified and benchmark exposure to serve as a core allocation.

Disclosures is the trade name of Quantalytics Holdings, LLC., LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of's investment advisory services.

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