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Key Challenges Of Thematic Investing

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Over the past few years, disruptive ideas, innovations and economic forces have reshaped the way we live. Investors are constantly researching new and promising ideas in order to capitalize on themes that will drive tomorrow’s markets. Broadly speaking, thematic investing is the approach of taking advantage of future trends while just as importantly avoiding the losers. Its forward looking approach stands in contrast to a relative investing strategy which relies heavily on market capitalization to determine weights in a portfolio. On the other hand thematic investing is a top down investment approach providing investors an opportunity to generate alpha. Fundamentally, the objective of thematic investing is to not only generate superior returns but is evolving traditional index investing. Consider the Trends One of the key challenges of thematic investing is successfully identifying and capitalizing on themes. That being said, not all themes will necessarily lead to successful investments. History is littered with examples of prospering industries with no indication of which company will come to dominate the industry. This suggests that successful thematic investing is more about selecting baskets of investments rather than single securities. A few factors should be considered when researching and prioritizing trends. First, an investor or fund manager should choose particular trend of theme that aligns with their values. Examples of these include, technology, clean
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