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Thematic investing is a strategy that focus on long-term trends that have the potential to structurally change societies and economies, instead of following traditional trends such as sector or asset-based investing.
Thematic investors will build a portfolio of assets and trades that seek to capitalize on an emerging macrotrend and theme with the potential to have a massive, long-term impact on the economy and with the potential to see sustainable, long-term growth.
These trends include technological innovations, demographic shifts, political instability and environmental impact. Unlike more conventional strategies, such as asset or sector-based investing, thematic investing cuts across multiple industries and asset classes.
Thematic investors looking to capitalize on technological innovation will seek to invest in highly disruptive technologies that have the ability to forever change the economy across a wide variety of sectors. Examples include:
- AI: artificial intelligence is emerging as one of those high impact, from generative AI to self-driving cars and industrial robotics.
- Cryptocurrencies and blockchain: Since the emergence of Bitcoin in 2009, cryptocurrencies have become a highly popular asset class, while the application of blockchain is being explored and implemented across a variety of diverse industries.
- E-commerce and fintech: Like crypto, these technologies have shaped global commerce, impacting everything from financing and payments to industry, supply chain, logistics, shopping and delivery.
Read more about: Is Cryptocurrency Investment Halal or Haram?
These are major macroeconomic trends that come out of changes in the demographic makeup of a society. Examples include:
- Ageing populations: As we’re currently seeing in Western economies, populations with slowing birth rates and ageing populations have had an impact on the healthcare and pharmaceutical industries.
- Gen Z and millennial trends: As new generations come with their own cultural and social trends, so too must economies adapt to meet their needs, including such things as social media and consumer electronics.
- Urbanization: As increasing number of people move to cities, thematic investors looking to capitalize on this will seek out the infrastructure, healthcare, transportation and energy sectors.
As climate change continues to be among the biggest threats facing the globe, investing in mitigating and adapting to it has become a major investing trend among thematic investor. Examples include:
-Renewable energy: Whether it’s solar panels, wind farms, or the still nascent fusion energy, investors can come in across the entire value and production chains of these technologies.
- Sustainable transportation: Investments in this include everything from electric vehicles to battery technology and charging stations and smart grids for efficient transportation.
- Agriculture and food: investors looking to dip their toes in this area can look at everything from agritech, sustainable irrigation, and supply chain management.
Rising geopolitical tensions and the subsequent economic instability can provide an opportunity for some thematic investors. Examples include:
· - Countries in crisis: Using bonds, stocks and ETFs (more on that below) investors can short markets and whole regions going through a crisis or migrate to more stable countries.
· - Defense industry: These run the gamut of weapons manufacturing to cybersecurity and pharmaceuticals.
· - Safe havens: These are asset classes that prove attractive to investors in times of instability, including commodities such as gold.
There are multiple ways the average retail investor can partake in thematic investing. These include:
These are straightforward capital market assets that any investor can buy into, whether its going long on companies, sectors, bonds, and currencies where these trends are most prevalent, or shorting assets that the trend will disrupt.
Similarly, exchange-traded funds (ETF) provide another capital markets route for thematic investing. ETFs, however, offer much more diversified and convenient options, allowing the investor to potentially make gains on a number of assets.
Read more about: Halal Etfs Investment Guide
This route provides thematic investors with the ability to invest outside public markets.
It allows them to invest in potentially profitable companies from the ground floor, especially if they eventually go public. However, this is the riskiest route, as these are mostly still nascent or pre-IPO companies.
Read more about: Private Equity & Venture Capital as Asset Class
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
