When it comes to investing, a common saying goes something like “the trend is your friend.” Certain investing styles capture the trend better than others.
One of the techniques that’s quickly gaining the attention of investors is called thematic investing. An example of a thematic investment is clean energy. The S&P Global Clean Energy Index has enjoyed over 38% annualized return the past three years, compared to only 16% with the S&P 500 Index.
If you are interested in learning more, keep reading this comprehensive guide to learn precisely what is thematic investing and how it can boost your portfolio.
What Is Thematic Investing
To define thematic investing, it’s first important to understand emerging trends in the financial markets. For example, when the pandemic hit, it wiped out office buildings, leaving many people working from home.
This work from home trend sent several high-profile companies’ stocks flying that would benefit from the new trend, such as Zoom. Other companies that benefited from the work from home trend include Wal-Mart and Amazon, from an increase in demand for deliveries and groceries.
How Does It Work
Thematic investing involves investing in trends that you believe will grow and expand in the long term, benefiting the companies involved with the expansion. A few popular thematic investments include:
- Autonomous vehicles
- Clean energy
- Electric technologies
- Financial technology
- Data storage
- Gene editing
- And robotics
Investors believe these are the next “up and coming” technologies that can be revolutionary. As the companies involved with these emerging trends grow, they will provide shareholder value for owning the stock.
You can also opt to invest in a thematic ETF to gain exposure to various innovative trends. ETF’s allow you to diversify and invest in several different companies and assets rather than just a single asset.
Benefits of Thematic Investing
The reason thematic investing is becoming so popular is because of the success we have seen in the past few years with innovative funds.
One of the most significant benefits of using this approach to investing is that you get to get in at the ground floor of some of the most innovative companies. In some instances, getting ahead of the trend can generate significant rewards for shareholders that invested in the early stages of a company. Your portfolio can benefit from these trends becoming more popular and adopted by investors.
However, with that being said, thematic investing can also be risky. If you’re not careful, a trend can lose momentum and decrease in value. You could also invest in the wrong company that gets beat out by the competition in the early stages of the business’s development. Learn more about if thematic investing is right for you at rvwwealth.com.
The Best Investing Style for You
Now that you know what is thematic investing, you may be wondering if the investing style is right for you. The answer depends on your investing goals – are you looking to retire within the next five years, or do you plan on holding for 20 years? To protect your portfolio, it’s always recommended to diversify and invest in a few companies rather than just one or two.
To learn more about investing and growing your wealth, discover our blog for a variety of helpful content.