Thematic investing is a strategy that involves putting capital into specific objectives or ideas – themes, if you will. These themes may be designed around long-term market trends, personal values and beliefs or social ideas. Many such trends – like ESG, cybersecurity and AI investing – are expected to play out over years or decades.
Thematic investing aims to capitalize on long-term ideas, trends and personal and social values that don’t fit more traditional boxes.
For instance, sector investing focuses on specific sectors, like healthcare and manufacturing. Similarly, regional investing might put your capital to work in European or Asian markets.
But thematic investments aim to capture the upsides generated by economic, technological and social changes. In doing so, they often include assets from several other “boxes” at once, such as sector, style and market cap.
Consider artificial intelligence. Companies of different market caps and sectors develop or rely upon AI, including IT, automakers and clean energy producers. If you invested in AI as a theme, you might include small- and large-cap assets from each of these sectors.
Thematic investments take many forms, depending on if you invest in a thematic fund or build your own. For instance, you might focus on assets related to:
Many funds collect assets across these themes to focus on broader goals, such as megatrends (investments with global impacts).
Disruptors, or companies that could upend existing industries or create new ones, are also popular.
And let’s not forget about ESG-focused investments designed to build a cleaner, more sustainable future.
Thematic investments make buying into specific ideas and personal preferences easy. But before buying in, it’s important to recognize that there are downsides, too.
Thematic investments offer a chance to capitalize on long-term social, economic and technological trends. These funds provide exposure to new regions, sectors, market caps and innovations.
Plus, concentrating parts of your portfolio into smaller ideas means you can profit from personalization and positive global impacts. Some thematic funds even target specific outcomes, such as conserving capital or meeting established growth targets.
To take advantage of thematic investing, you first have to decide which goals, innovations and ideas matter to you. From there, you’ll have to build your own fund or research existing funds with similar goals.
During this process, you’ll want to ensure that you remain properly diversified to minimize risk in your portfolio. Many thematic investors choose a mix of broad-based and narrowly concentrated funds to balance risk and reward.
Generally, broad funds provide more diversification for investors who want to capitalize on their moral compass while mitigating risk. Concentrated funds hold fewer securities, leading to less diversification and increased risk. However, concentrated funds can function as “building blocks” to construct or amend a robust, well-rounded portfolio.
And while many thematic funds are ill-suited as core investments, some broader funds provide enough diversification to serve as a solid foundation.
It’s possible for a single investment theme to spawn dozens of funds, with each fund manager taking a different approach. For example, a sustainable energy fund might focus on solar, wind or biofuel research and generation – or all three.
Due to such variations, it’s important to ask the following questions before investing in any theme or fund:
Once you’ve outlined your own needs and begun answering these questions, you can determine if a thematic investment is right for you.
With thematic investments, you can capitalize on your personal values or beliefs about the future. But you’re not limited to stocks – you can invest in bonds, commodities, real estate and more. You can incorporate these assets into your preferred theme by handpicking assets for your strategy.
If you don’t have the time or money to build a personalized portfolio, many investment platforms offer access to thematic funds. Aside from a range of options, managed funds offer instant diversification and the benefit of an expert researching potential investments.
For example, many – if not all – of Q.ai’s Investment Kits could qualify as thematic funds, like our:
Better yet, all of these Kits are backed by Q.ai’s artificial intelligence algorithms. Our AI scours the market to find the investments with the best risk-adjusted returns, based on its predictions. And once you’ve invested, it even works to rebalance and readjust your personal risk between Kits to minimize your risk of loss.
Thematic funds with an AI-backed twist? We’re here for that.
Thematic investment strategies help investors capitalize on personal preferences and future trends. By stepping outside traditional boxes, you can enjoy new levels of diversification and profit potential.
That said, it’s important to remember that many thematic trends are designed as long-term investment strategies. Additionally, thematic investing comes with its own risks that should be considered within your broader portfolio.
Thematic investing helps you capitalize on long-term ideas, trends and values that don’t fit into traditional boxes. Their goal is to capture the upsides generated by economic, technological and social changes across sectors and market caps.
Whether you should buy into any given thematic fund depends on your preferences and financial situation. But generally speaking, thematic funds make adding specific ideas and innovations to your portfolio a breeze.
Thematic investing, like all investment strategies, carries some risks, including liquidity concerns and potentially higher costs. Additionally, buying too many funds in the same theme risks concentrating your capital in just a handful of securities.
Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, 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 Q.ai's investment advisory services.