Thematic Investing: A Guide to Investing in Ideas

Thematic investing is a way of investing that focuses on specific ideas or trends that are expected to shape the future. This approach involves identifying and investing in companies that are well-positioned to benefit from these trends.

Investors can choose from a range of themes, such as technology, healthcare, and sustainability, which are often driven by megatrends like urbanization and demographic shifts. These megatrends have a significant impact on the global economy.

By investing in thematic funds or individual stocks, investors can gain exposure to a particular idea or trend. For example, investing in a fund focused on renewable energy can provide a way to benefit from the growing demand for clean energy.

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Thematic investing is a research-intensive style of investing that starts with an idea or trend and finds publicly traded companies that seem relevant. It's not about grouping companies by traditional industrial sectors or selecting them based on market capitalization.

Thematic investing is a broad term with a meaning that can differ depending on the audience, but it tends to be global and can be multi-asset. Professional investors describe it as picking things they think are important, such as emerging markets, changing technology, or environmental issues like water shortages.

The Financial Times sought out insights from professional investors in 2013, and Frances Hudson from Standard Life Investments said that thematic investing involves picking things that are important, like emerging markets or changing technology. Charles Richardson from Veritas added that it's about formulation of strategic context and getting behind future tailwinds.

Thematic investing is not just about picking stocks, but also about ensuring that the assembled portfolios continue to perform as intended. This can involve establishing benchmarks for thematic relevance that are separate from traditional measures of performance, such as returns or volatility.

Here are the seven golden rules associated with thematic investing, as identified by Galilee Asset Management:

Thematic investing is not a sector, but rather a theme that encompasses companies across multiple sectors, whose revenue is generated from the same origin or cause. This approach makes financial investments more tangible for investors, as they can more easily grasp the meaning behind their asset allocation.

Thematic investing is a research-intensive style of investing that starts with an idea or trend and finds publicly traded companies that seem relevant.

To identify investable themes, fund managers and researchers collect vast amounts of data, including financial news articles and earnings call transcripts, to link companies to potential themes.

Our systematic approach starts with collecting over one million financial news articles each year and more than five thousand earnings call transcripts every quarter.

This paints a detailed picture of the current thematic landscape, potentially before the market can piece together evolving trends.

Using NLP techniques, we expand the initial cohort to include a broader group of stocks that spans both direct and indirect relationships to the theme, revealing more subtle linkages.

We extract keywords from broker research and search for those keywords across sources such as conference call transcripts and financial news to uncover names not originally captured.

Part of an alpha-seeking, systematic approach to thematic investing is the consistent and timely analysis of existing themes, which requires daily evaluation of the return potential of all themes in the investible universe.

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This lays the groundwork for portfolio implementation, where we use an optimization that incorporates both our alpha forecasts for each individual theme and the interactions, or correlations, across stocks and themes.

Thematic investing involves creating a portfolio by gathering together a collection of companies involved in certain areas that you predict will generate above-market returns over the long term.

Themes are based on a megatrend such as population ageing, the digital revolution, or the rise of the middle class in emerging markets.

Thematic investing is also a topic of debate, with some cautioning against funds that simply leverage popular marketing themes to attract investors without implementing a rigorous methodology.

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Thematic investing is a way to invest in ideas you believe in. You can find your themes and get started.

A systematic framework is used within the iShares U.S. Thematic Rotation Active ETF (THRO) to generate consistent alpha. This framework seeks to address the unique challenges of thematic investing.

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The framework leverages data and technology to monitor how themes develop and interact in real-time. It incorporates a breadth of insights to navigate the thematic landscape.

To identify the themes to invest in, a data-driven approach is used. This approach leverages large language models and vast sets of data to uncover companies with direct and indirect exposure to themes.

The iShares U.S. Thematic Rotation Active ETF (THRO) seeks long-term capital appreciation by investing across the themes with the most compelling return potential.

Here are some key points to consider when it comes to thematic investing:

Thematic investing offers a wide range of investment options, including equity and thematic funds.

One notable example is the iShares U.S. Thematic Rotation Active ETF, which has received a Morningstar Rating.

Investors can also access thematic investment through social trading platforms, such as eToro's copy trading feature, which allows traders to automatically match portfolios of leading investors.

Some of the top thematic funds include the iShares Automation & Robotics ETF (RBOT) and the L&G ROBO Global Robotics and Automation ETF (ROBO), which together account for almost half of the total thematic ETF assets in Europe.

Here are some notable thematic ETFs in Europe, sorted by their assets under management:

Thematic funds have also gained popularity, with €112bn in asset under management in April 2020, and €7 Billion in total assets in thematic exchange-traded funds (ETFs) in Europe as of November 2018.

When considering investment options, it's essential to explore various funds that cater to different investment goals and strategies.

Equity funds are a popular choice for investors seeking long-term growth.

Investing in equity funds can be a great way to diversify your portfolio and potentially earn higher returns over time.

The iShares U.S. Thematic Rotation Active ETF is one such equity fund that has received a Morningstar Rating.

This rating system helps investors evaluate the performance of funds and make informed decisions.

For example, the iShares U.S. Thematic Rotation Active ETF has received a Morningstar Rating, indicating its performance in relation to its peers.

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You have access to over 40 themes, each consisting of up to 25 stocks that you can customize to fit your investing strategy. Each theme is like a basket of stocks tied to a specific trend or theme, and you can easily add, remove, or adjust your exposure to each stock.

To give you an idea of the scope, let's take the example of generative AI, a theme that's been identified by analysts and portfolio managers. Our model can construct a custom basket of stocks that includes not only the companies developing AI technology but also semiconductor manufacturers who create the hardware necessary for AI model training.

Here are some examples of themes you can invest in, along with the number of stocks in each theme:

These themes are not just limited to technology and finance; you can also invest in more niche areas like water funds, which have reached $35 billion in assets under management as of August 2021. With so many options available, you can choose the themes that align with your investing goals and risk tolerance.

As you explore these themes, keep in mind that you can also use social trading platforms like eToro to easily access thematic investment and automatically match your portfolio with leading investors. This can be a great way to diversify your portfolio and stay up-to-date with the latest trends.

Our research and proprietary technology help identify trends and uncover relevant stocks that are grouped into themes, making it easier to spot emerging trends and innovations.

Charles Schwab Investment Management, Inc. uses a unique research process to uncover emerging trends and innovations and to assess their investment potential.

This process involves using proprietary technology to mine terabytes of data and discover companies to consider for a given theme.

Here's a breakdown of the steps involved in creating Schwab Investing Themes:

To build your knowledge, start by learning about sector investing at Fidelity, where you can find valuable resources to get you started.

Fidelity offers multiple ways to help you learn about thematic investing, so take advantage of these tools to expand your understanding.

You can use Fidelity's Virtual Assistant to access expert advice and guidance on thematic investing, making it easier to make informed decisions.

Let research do the heavy lifting by using proprietary technology to identify trends and uncover relevant stocks. This technology helps uncover emerging trends and innovations, which are then used to create investment themes.

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You can choose from over 40 themes, each with up to 25 stocks, and pick a theme that interests you. For example, you can explore the space economy or the robotic revolution.

Our proprietary technology mines terabytes of data to discover companies to consider for a given theme. This process helps generate a list of highly relevant stocks for each theme.

Here's a brief overview of the research process:

The hand selects the "Space Economy" theme, and our proprietary technology shows a list of relevant stocks based on emerging trends and innovations.

Thematic investing platforms offer easy access to thematic investment, allowing investors to automatically match portfolios of leading investors. For example, eToro's copy trading feature enables traders to match portfolios in areas such as technology, cryptoassets, renewable energy, and more.

In Europe, total assets in thematic exchange-traded funds (ETFs) were just under €7 Billion in November 2018. The five largest ETFs account for 73% of total thematic ETF assets.

Schwab Investing Themes offers over 40 themes, each with up to 25 research-backed stocks that can be customized and traded in a few clicks, all with no fees to access.

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Fidelity offers a range of thematic funds that cover strategies to match your interests with your objectives.

With Fidelity, you can invest in long-term trends or themes, such as innovative business models and emerging industries that are changing the status quo.

Fidelity's thematic funds also provide exposure to environmental or social themes, which is a key aspect of sustainable investing.

Their differentiated insights and industry-leading investment experience can help you make informed investment decisions.

Fidelity's thematic funds cover megatrends that are affecting our world, giving you the opportunity to invest in long-term trends.

By investing with Fidelity, you can tap into their unique insights and industry-leading investment experience.

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Schwab Investing Themes offers over 40 themes, each with up to 25 research-backed stocks that can be customized and traded in a few clicks.

You can access these themes with no fees, making it a cost-effective option for investors.

Schwab Investing Themes is not intended to be investment advice, so be sure to consider your individual circumstances before investing.

Past performance is not a guarantee of future results, so it's essential to do your own research and make informed decisions.

These themes can be a great starting point for new investors, offering a range of options to explore and learn from.

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Investor access and take-up have become easier than ever, thanks to social trading platforms. These platforms offer investors a chance to invest in thematic areas with just a few clicks.

In April 2020, thematic funds had reached a staggering €112 billion in asset under management. This is a significant increase from the total assets in thematic exchange-traded funds (ETFs) in Europe, which were just under €7 billion in November 2018.

The top five largest ETFs account for 73% of total thematic ETF assets. The top two, iShares Automation & Robotics ETF (RBOT) and L&G ROBO Global Robotics and Automation ETF (ROBO), account for almost half.

As of June 2019, 13 U.S.-listed thematic ETFs held more than US$1 billion in assets, while another nine held more than US$500 million. In Canada, the fund category held about $2.5 billion as of January 2020, with no single fund holding more than $500 million.

The popularity of thematic investing is evident in the number of water funds, which have reached 65 as of August 2021, with a total of $35 billion in assets under management.

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Our systematic framework can enhance portfolio exposure by capturing thematic alpha with precision. This is made possible by transforming a wealth of data into valuable insights.

A dynamic thematic strategy can generate consistent and compelling excess returns above and beyond the market, using broad US equities as our reference benchmark.

Investors can access diversified exposure to a spectrum of timely and transformational themes, making a systematic framework the future of thematic investing.

Themes such as the pandemic and generative AI have dominated headlines in recent years, and our analysis indicates that a dynamic thematic strategy can complement other investment allocations.

By using a systematic approach, investors can tap into the potential of thematic investing and create a well-rounded portfolio that meets their needs.

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Thematic investing is a research-intensive style of investing that starts with an idea or trend and finds publicly traded companies that seem relevant. This approach requires fund managers to identify investable themes and find investments that support those themes.

Thematic investing products use technology like AI to scan company reports and other information to pull potentially thematically linked companies together into a bundle. Alternatively, fund managers rely on their expertise to declare a theme and then pick and choose stocks.

To identify themes, investors can use a systematic approach that involves collecting vast amounts of data, analyzing financial news articles and earnings call transcripts, and using NLP techniques to extract keywords and uncover subtle linkages between companies and themes.

For example, a systematic approach might involve constructing a custom basket of stocks that spans both direct and indirect relationships to a theme like generative AI. This can include firms that develop AI technology and semiconductor manufacturers who create the hardware necessary for AI model training.

Thematic investing products can also use benchmarks for thematic relevance that are separate from traditional measures of performance, such as returns or volatility. This helps ensure that the assembled portfolios continue to perform as intended, without straying from their targeted themes.

Some popular themes for thematic investing include Artificial Intelligence, Renewable Energy, and Robotics. These themes can be accessed through social trading platforms, such as eToro's copy trading feature, which enables traders to automatically match portfolios of leading investors.

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As of August 2021, there were 65 water funds holding $35 billion in assets under management. This is just one example of the growing popularity of thematic investing, which has reached €112 billion in asset under management as of April 2020.

Thematic ETFs, such as Fidelity's thematic ETFs, offer the benefits of trading flexibility and potential tax efficiency. They enable investors to invest in long-term trends and explore a wide range of themes, from Artificial Intelligence to Renewable Energy.

Here are some popular themes for thematic investing: