What is Thematic Investing? 3 Top Thematic ETFs & Stocks to Watch
In this article, we answer the question ‘what is thematic investing?’ and go through how to build a portfolio of stocks using some of the most important themes shaping the future.
Table of Contents
Thematic Investing Definition
What is thematic investing? Thematic investing is an investment approach that focuses on identifying the biggest themes that could drive a certain stock or sector higher in the future, rather than investing based on what has happened in the past.
For example, an investment theme could be the rise of cloud computing, artificial intelligence or self-driving cars. These are likely to exhibit long-term trends enabling investors to participate in shifts that can change an entire industry.
5 Themes Shaping the Future
According to investment management firm BlackRock, there are five megatrends that are shaping the future. These include:
1. Technology
Technological breakthroughs have been one of the biggest themes for investors over the past decade. Low-interest rates have helped to fuel rapid growth in a variety of technological sectors.
Innovation in technology is important as it helps to address some of the largest issues affecting the world and society such as climate change but also smaller issues such as digital payments.
2. Rapid urbanisation
Cities are home to some of the biggest companies and the labour force. Mass migration towards cities for work opportunities has led to traditional infrastructure models to change. This, in turn, has led to a rapid rise in infrastructure investments which can help investors to identify new sectors for potential growth.
3. Demographics and social change
Demographics are constantly changing around the world. Since the pandemic, people now have different priorities which have already affected the economy. An ageing population, pressures from immigration and a different attitude from new generations will weigh on businesses and societies causing a change in economic and business models.
4. Climate change and resource scarcity
Resources on the planet are finite, yet an ever-growing population has increased the demand for food, materials and energy. The race to provide solutions to these issues is one of the biggest themes affecting the planet right now. The demand to lower food waste and green technologies has never been more important.
5. Emerging global wealth
The middle class is increasing across the world as globalisation has helped economies to rise in world rankings. Aspirations are growing in many more countries around the world with new wealth providing opportunities for a wide range of businesses such as the luxury sector.
Thematic Investing Strategies
Two of the most popular methods to participate in thematic investing include:
- Thematic equity investing.
- Thematic investing ETFs (exchange traded funds).
Thematic Equity Investing
Thematic equity investing involves investing in individual equities, or companies, that fit into a broader theme of potential growth.
For example, if an investor sees electric vehicles and self-driving cars as the next big global theme shaping the future, they may consider investing in companies such as Tesla.
During the pandemic, investors saw the potential of messenger RNA (mRNA) vaccine technologies helping to lift the share price of biotech companies such as Moderna which specialised in it.
If an investor sees potential in cloud computing as the next big global theme, then they may seek out cloud companies such as Snowflake.
One challenge with thematic equity investing is that is it focused on the performance of just one company rather than the broader theme or sector. This is why many investors consider thematic investing ETFs as another option.
Thematic Investing ETFs
ETFs or exchange-traded funds, invest in a basket of securities that track an underlying theme. This provides investors with exposure to many different companies involved in a broader theme but with just one investment.
Source: BlackRock, 19 August 2022
While investors can choose to invest in the iShares Global Energy ETF, the list of holdings can also be used to source companies that are involved in a broader theme to invest in individually.
With Admiral Markets, you can invest in thousands of stocks and ETFs from 17 of the largest stock exchanges around the world.
For example, the iShares Global Energy ETF is a fund which invests in companies involved in clean energy production and clean energy equipment and technologies. According to the fund’s factsheet, it holds investments in 172 companies.
Top 3 Thematic ETFs to Watch
There are thousands of potential ETFs to invest in. Below is a list of three thematic ETFs to watch.
1. iShares Automation & Robotics ETF (RBOT)
The iShares Automation & Robotics ETF invests in companies that developing technology within the field of automation and robotics. The fund has achieved a cumulative return from inception in 2016 to the end of July 2022 of 103%.
The top five holdings in the fund include Epam Systems, Novanta, Lattice Semiconductors, Snowflake Class A and Rockwell Automation.
You can invest in the iShares Global Infrastructure ETF from an Admiral Markets Invest.MT5 account with a 0.10% commission per-side transaction and a low minimum transaction fee of just $1.
2. iShares Global Clean Energy ETF (DNRG)
The iShares Global Clean Energy ETF invests in companies involved in the production of clean energy. Since the fund’s inception in 2007, its cumulative performance up to the end of July 2022 is –38.35%.
The top five holdings in the fund include Enphase Energy, SolarEdge Technologies, Vestas Wind Systems, Plug Powe and Consolidated Edison.
You can invest in the iShares Global Clean Energy ETF from an Admiral Markets Invest.MT5 account with a 0.15% commission per-side transaction and a low minimum transaction fee of just $1.
3. iShares Global Infrastructure ETF (INFR)
The iShares Global Infrastructure ETF invests in companies the most liquid infrastructure companies from emerging and developed markets. The fund has achieved a cumulative return of 105% from inception in 2006 to the end of July 2022.
The top five holdings in the fund include Nextera Energy, Union Pacific, American Tower REIT, Enbridge and Duke Energy.
You can invest in the iShares Global Infrastructure ETF from an Admiral Markets Invest.MT5 account with a 0.10% commission per-side transaction and a low minimum transaction fee of just $1.
How to Invest in Thematic ETFs & Stocks
To begin thematic investing, you first need a stock trading account to get access to the world’s largest stock exchanges. With Admiral Markets, you can open an Invest.MT5 account and invest in stocks and ETFs from 15 of the world’s largest stock exchanges.
- Below is a step-by-step process on how to invest in stocks and ETFs from the Invest.MT5 MetaTrader 5 web platform.
- Login to the Admiral Markets Dashboard. Here you can access different accounts, investing tools and more.
- Click Trade next to the account name you want to trade from.
- Type the name of the stock or ETF at the bottom of the MarketWatch window. Drag the name onto the chart to view its live price.
- Click New Order at the top of the window. This opens a trading ticket to input entry, stop loss and take profit levels and the number of shares you wish to purchase.
Source: Admiral Markets MetaTrader 5 Web, 19 August 2022
Why Start Thematic Investing with Admiral Markets?
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Frequently Asked Questions on Thematic Investing
What is thematic investing?
Thematic investing is an investment strategy that involves investing in themes that shape the future rather than focusing on the past performance of a company or sector.
What is a thematic strategy?
A thematic strategy could involve investing in companies or ETFs that are involved in a global theme that will shape the future. Themes could include electric cars, climate change, medicine and more.
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