Like all new trending concepts, it may be challenging to get a grip on what thematic investing means.
Thematic investing actually refers to an investment strategy based on global trends and themes believed to create generational opportunities for market-beating returns. Unlike other types of investment, it focuses on a single theme – such as sustainable living or wellness – rather than a specific company or industry.
But considering central banks around the world are tightening monetary policies – as recession looms large – is now a good time to buy stocks?
Well, as the saying goes “you should never try and time the stock market”.
When growth is scarce, growth is valuable and priced accordingly. But although short-term market-generated volatility may offer pretty compelling entry points, you should always bear in mind that themes (even those which benefit from strong public support and innovation) may be impacted by politics, regulation or simply macro-environment – therefore creating a significant performance differential. So, you need to be nimble and alive to liquidity challenges.
Making the difference between a passing fad and a sustainable driver for returns may be tricky though – first, you must look at its durability, its tenor, as well as its financial upside. Some trends are so powerful they can transcend market cycles.
But beyond the financial aspect, thematic investing allows one to invest with a purpose. Investors now, more so than ever before, are keen to understand how exposure within their investment portfolios will impact the real world and society at large.