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Thematic investing is a form of investment that aims to identify macro-level trends and the underlying investments that stand to benefit from the materialisation of those trends. [1] Thematic investing aims to seize opportunities arising from megatrends likely to shape the global economy in the decades ahead. [2]
In 2013, the Financial Times described thematic investing as a broad term with a meaning which can differ depending on the audience. [3] The newspaper sought out the insights of professional investors regarding the matter. Frances Hudson, strategist for multi-asset investing at Standard Life Investments, said: “It tends to be global [and] it can be multi-asset, although within wealth management it is primarily equities. The manager will pick things they think are important, so it might be the emergence of emerging markets, something changing about technology, or an aspect of the environment, such as water shortages.” [3] According to Charles Richardson (Veritas), the benefits include “formulation of strategic context, getting behind future tailwinds, narrowing the universe, and focusing further research while avoiding spot forecasting or market timing.” [3] Jan Luthman (Liontrust) said: “Today’s macro themes are both unprecedented and powerful. Major themes such as globalisation, population ageing and environmental change have significant implications for economies and businesses. Structuring a portfolio so it fits with the forces that are reshaping national and international economies allows it to ‘sail with the wind’; ignoring or misinterpreting these themes can condemn a fund to perpetually sailing against unseen and misunderstood tides.” [3]
In 2022, Galilee Asset Management published a white paper on thematic investing. [2] The company pointed out that the notions of thematic investing and thematic funds are “not legally defined by current regulations” and that “portfolio management companies tend to use the term "thematic investing" in a non-standardized manner, based on heterogeneous criteria, sometimes even specific to each portfolio manager”. [2] In order to build a common definition, the company emphasized that thematic investing is necessarily based on megatrends, and that “a theme must imperatively be structural, international, and multi-sectoral”. [2] Therefore, “a thematic investor should not question the validity of the economic model of the selected theme or its fundamentals for at least the next 20 years”. [2] Galilee Asset Management also pointed out that “A theme is not a sector. It encompasses companies across multiple sectors, whose revenue is generated from the same origin or cause”. [2] This approach tends to “make financial investments more tangible for investors, whether they are individuals or institutional, as they can more easily grasp the meaning behind their asset allocation”. [2] The company also explained that “thematic investing comes with several pitfalls to avoid”, and identified seven golden rules associated with thematic investing: [2]
Though similar to sector investing, thematic funds tend to cover a variety of sectors and pick companies within these sectors that are relevant to the theme. Thus a health care fund might invest in pharmaceutical companies, health insurance companies, nursing homes, surgical equipment manufacturers and hi-tech and infotech companies that support any of the former. [4]
Thematic investing involves creating a portfolio (or portion of 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. [5]
Thematic investing is also a topic of debate. Galilee Asset Management cautioned in its 2022 white paper against funds that simply leverage popular marketing themes to attract investors without implementing a rigorous methodology. [2]
Some core areas in thematic investing include:
Social trading platforms offer investors easy access to thematic investment. For example, eToro’s copy trading feature [9] enables traders to automatically match portfolios of leading investors, providing exposure to portfolios in areas such as technology, cryptoassets, renewable energy, gaming companies, banks, genome engineering and others. [10]
In April 2020, thematic funds have reached €112bn in asset under management. 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. The top two, iShares Automation & Robotics ETF (RBOT) and L&G ROBO Global Robotics and Automation ETF (ROBO), account for almost half. [11]
In November 2018, the UK's Investment Association proposed the inclusion of ETFs, including thematic EFTs, in its sectors. [12] As of June 2019, 13 U.S.-listed thematic ETFs held more than US$1 billion in assets and another nine held more than US$500 million. In Canada, no Canadian-listed thematic ETF holds more than $500 million, with the fund category holding about $2.5 billion as of January 2020. [13]
As of August 2021 there were 65 water funds holding $35 billion in assets under management. [14] [15]
Passive management is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index, but it is becoming more common in other investment types, including bonds, commodities and hedge funds.
An index fund is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that it can replicate the performance ("track") of a specified basket of underlying investments. While index providers often emphasize that they are for-profit organizations, index providers have the ability to act as "reluctant regulators" when determining which companies are suitable for an index. Those rules may include tracking prominent indices like the S&P 500 or the Dow Jones Industrial Average or implementation rules, such as tax-management, tracking error minimization, large block trading or patient/flexible trading strategies that allow for greater tracking error but lower market impact costs. Index funds may also have rules that screen for social and sustainable criteria.
An exchange-traded fund (ETF) is a type of investment fund that is also an exchange-traded product, i.e., it is traded on stock exchanges. ETFs own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars. Many ETFs provide some level of diversification compared to owning an individual stock.
The Vanguard Group, Inc. is an American registered investment advisor founded on May 1, 1975, and based in Malvern, Pennsylvania, with about $10.1 trillion in global assets under management as of September 2024. It is the largest provider of mutual funds and the second-largest provider of exchange-traded funds (ETFs) in the world after BlackRock's iShares. In addition to mutual funds and ETFs, Vanguard offers brokerage services, educational account services, financial planning, asset management, and trust services. Several mutual funds managed by Vanguard are ranked at the top of the list of US mutual funds by assets under management. Along with BlackRock and State Street, Vanguard is considered to be one of the Big Three index fund managers that play a dominant role in retail investing.
Pacific Investment Management Company LLC is an American investment management firm focusing on active fixed income management worldwide. PIMCO manages investments in many asset classes such as fixed income, equities and other financial assets across public and private markets. PIMCO is one of the largest investment managers, actively managing more than $2 trillion in assets for central banks, sovereign wealth funds, pension funds, corporations, foundations and endowments, and individual investors around the world. According to the Sovereign Wealth Fund Institute, PIMCO is the 6th-largest asset manager in the world by managed AUM.
Active management is an approach to investing. In an actively managed portfolio of investments, the investor selects the investments that make up the portfolio. Active management is often compared to passive management or index investing.
In finance, assets under management (AUM), sometimes called fund under management, refers to the total market value of all financial assets that a financial institution—such as a mutual fund, venture capital firm, or depository institution—or a decentralized network protocol manages and invests, typically on behalf of its clients. Funds may be managed for clients, platform users, or solely for themselves, such as in the case of a financial institution which has mutual funds or holds its own venture capital. The definition and formula for calculating AUM may differ from one entity to another.
TrimTabs Investment Research, Inc. is an independent institutional research firm focused on equity market liquidity based in Sausalito, California.
PGIM, Inc. (PGIM), formerly known as Prudential Investment Management, functions as the asset management arm of Prudential Financial, an American life insurance company.
Amundi is a French asset management company. With €2.2 trillion of assets under management (AUM) in 2024, it is the largest asset manager in Europe and one of the 10 biggest investment managers in the world.
An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages include an ability to:
Global X ETFs is a New York-based provider of exchange-traded funds that facilitates access to investment opportunities across the global markets. Founded in 2008, it has approximately $40 billion in managed assets, across more than 80 different products. The ETF issuer and manager is widely known for its Thematic Growth, Income and International product suites, in addition to its Core, Commodities and Alpha strategies. In July 2018, the company was acquired by Mirae Asset Global Investments.
Liquid alternatives are alternative investment strategies that are available through alternative investment vehicles such as mutual funds, ETFs, and closed-end funds that provide daily liquidity. Liquid alts are also known as 40 Act funds because they were created by the U.S. Congress in 1940.
Smart beta investment portfolios are long-only rules-based investment strategies that aim to outperform a capitalization-weighted benchmark. A comprehensive analysis of smart beta strategies has found that smart beta strategies have underperformed by 1% on average since launch.
SBI Mutual Fund is an Indian private asset management company introduced by the State Bank of India (SBI) and incorporated in 1987 with its corporate head office located in Mumbai, India. SBIFMPL is a joint venture between the State Bank of India, an Indian public sector bank, and Amundi, a European asset management company. A shareholder agreement in this regard has been entered on April 13, 2011, between SBI & AMUNDI Asset Management. Accordingly, SBI currently holds 63% stake in SBIFMPL and the 37% stake is held by AMUNDI Asset Management through a wholly owned subsidiary, Amundi India Holding. SBI & AMUNDI Asset Management shall jointly develop the company as an asset management company of international repute by adopting global best practices and maintaining international standards.
Trackinsight is a financial technology company headquartered in Biot, France. The company offers global Exchange-traded Fund (ETF) data and selection services for professional investors, advisors, institutions and ETF industry participants.
OppenheimerFunds, Inc. was a global asset manager. As of February 28, 2019, the company managed over $260 billion in assets in over 13,000,000 investor accounts. In May 2019, the company was acquired by Invesco. OppenheimerFunds had 16 investment management teams that oversaw actively managed equity, fixed income, alternative, and multi-asset portfolios, and exchange-traded funds. Customers included financial advisors and wealth managers and their clients, as well as institutional investors, corporations, financial endowments, foundations, and sovereign wealth funds.
ARK Investment Management LLC is an American investment management firm based in St. Petersburg, Florida, that manages several actively managed exchange-traded funds (ETFs). It was founded by Cathie Wood in 2014. At the height of February 2021, the company had US$50 billion in assets under management. As of October 2023, assets had dropped to $6.71 billion, after a period of poor performance.
DoubleLine Capital ("DoubleLine") is an American investment management firm headquartered in Tampa, Florida. It is known for its focus on investing in the bond market but also invests in other asset classes such as equities and commodities. The firm is majority owned by its employees.
First Trust is an American financial services firm based in Wheaton, Illinois. The firm is primarily engaged in issuing exchange-traded fund (ETF) products. However, it is also involved with other products such as unit investment trusts (UIT), mutual funds, and separately managed accounts for institutional investors.
