What Is Thematic Investing?

Thematic investing is all about identifying powerful, long-term global trends that could shape our future. By investing in the companies that stand to benefit from such secular, macro-level trends, investors can position their portfolios for an evolving world.

Some powerful themes we see today are associated with major trends like climate change, disruptive innovations, changing demographics and genomic medicine. These could transform industries and societies – and create the potential for major investment opportunities.

The growing popularity of thematic investing

Thematic investing is not new. The idea first emerged around 20 years ago and was used by institutions with access to global markets and sophisticated research teams. 

In recent years, thematic investing has started gaining traction. Data from Morningstar reveals that in the 15-month period leading up to March 31 2021, assets under management for thematic funds have more than tripled to USD$595 billion.

The survey also found that investors had a preference for sustainability (investing in climate change solutions and renewable energy) and disruption (investing in artificial intelligence (AI), robotics, healthcare innovations and other disruptive technologies). 

Should you go thematic?

Thematic investing is all about capitalising on sustainable, persistent, long-term trends with the aim of achieving positive returns over the long haul.

Many of the global megatrends we see today – climate change, energy transition, demographic and social shifts – are reshaping the world and will continue to do so for years, if not decades. As such, thematic investing is an approach that best suits long-term investors.

The advantages of thematic investing

Apart from long-term growth potential, thematic investing provides enhanced diversification. It allows investors to add exposure to selected trends in a way that is different from traditional region, sector, style or market-cap oriented strategies.

With the rise of thematic exchange-traded funds, or ETFs, investors can now get exposure to almost any trend they’re optimistic about. For instance, if you see the long-term potential in biotechnology, you can buy an ETF like the iShares Biotechnology ETF (IBB) and get diversified exposure to all 270 biotech companies in the fund. 

There’s no need to spend time and energy doing research on individual companies. You’re also minimising stock-specific risks by not concentrating all your investments in just a small number of single stocks. Win-win! 

Another advantage is that thematic investing lets you align your values and beliefs with your investments. The rise of ESG (environment, social and governance) is the clearest example. As our awareness of social responsibility grows, investors are increasingly seeking both performance and purpose. 

Thematic investing at Syfe

Our investment team has identified a number of transformative forces that are poised to reshape our world. We see the greatest potential in the themes of disruptive technologies, sustainability, genomic medicine, and China’s new economy. 

These megatrends form the basis of Syfe Themes, a collection of five portfolios built using best-in-class thematic ETFs.

  • ESG & Clean Energy: Stocks focused on ESG, clean energy, and water sustainability
  • Disruptive Technology: Companies focused on innovations like robotics, artificial intelligence and cloud computing
  • Healthcare Innovation: Investments focused on healthcare advancements such as genomics, biotechnology, and pharmaceuticals
  • China Growth: Stocks aligned to companies in China’s growing tech and consumer sectors
  • Global Income: Investment-grade and high-yield corporate and government bonds that offer high yields

Adding themes to your portfolio

Thematic investing is an exciting approach, but it should be used to complement, not replace, your current investments. This is also known as core-satellite investing, a strategy we like to recommend to our customers. 

For your core component, you can consider a diversified portfolio like Syfe Core Balanced

Thereafter, you can use thematic portfolios as “satellites” to strategically add certain exposures to your core holdings for better diversification and higher potential returns.

Interested? Consider investing in Syfe’s thematic portfolios. There’s no minimum investment and no brokerage fees. Plus, dividends are reinvested automatically for you.

This article is for information purposes and does not constitute financial advice. This is not an offer, recommendation or solicitation to buy or sell any products. This advertisement has not been reviewed by the Monetary Authority of Singapore.

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