What is thematic investing?

Thematic investing is investing that’s based around a theme or trend. The theme can be anything, but in the wider context of thematic investing, it’s often taken to be a new, emerging or exciting industry or sector with future growth potential. ✨ Examples of thematic investing opportunities include automation and robotics, clean water, clean energy and new technologies like blockchain.

At the moment, these areas are expanding but they aren’t a major feature of your daily life. We use automation and robotics in our phones, for example, but there is so much more that the industry could accomplish this century. Self-driving cars, drone delivery systems, robotic surgeons and computerised medical diagnoses are all examples of developments that could be to come, or are not yet part of our everyday lives. 🏎️


Why is thematic investing becoming popular?

Thematic investing is becoming popular because of the growth opportunities that this kind of investing might offer. It could be this generation’s dotcom boom – and many don’t want to miss out in case it is. 🌐

Thematic investing case study: clean water

Let’s put thematic investing into context with an example. Water scarcity – meaning a declining supply of clean drinking water – is becoming increasingly concerning for politicians and decision makers the world over. 🌊 The world’s population is growing – set to exceed 10 billion by 2100 before declining after that – but the supply of clean water is static or even decreasing due to climate change and pollution.

The graph below shows the global population living in areas with a shortage of clean water using data from 1901 to 1910.

Here’s another graph showing the same thing, but using data for 2001 to 2010. It shows that areas of the world which were not at risk of water shortages at all in the 1900s were experiencing water shortages just a century later. 

So the supply of clean water is becoming a pressing issue around the world, and as the global population continues along its expected trajectory, the supply of clean water will become ever more scarce. 

This is why water has emerged as a popular thematic investing opportunity. And, the companies that are investing in technology to guarantee clean water security, or that are focused on water infrastructure, are emerging as ones to watch. 👀


Thematic investing outlook

To get a sense of the future outlook for thematic investments, we can look to how the sector has performed and expanded over the last few years. Research from Morningstar shows that 237 thematic funds debuted in 2020 compared to 167 in 2019. This 30% increase in thematic funds could represent expansion and increasing investor interest in thematic investing opportunities.

We can also see from the research that the most popular thematic investments are those that track energy transition themes – with these funds having $74 billion in combined assets as of 31 March 2021. Energy transition is set on shifting the world’s reliance on fossil fuels towards clean, renewable energy. ☀️

The report goes on to say that ‘over the trailing three years (from 31 March 2021), assets under management in these (thematic) funds more than tripled to $596 billion from $174 billion worldwide. This represented 2.1% of all assets invested in equity funds globally, up from 0.6% 10 years ago’.


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How to invest in thematic ETFs

To invest in thematic ETFs, you’ll need to choose an investment provider. At Moneybox, we offer a range of thematic ETFs – from clean energy and clean water, to cyber security and digitalisation. ETFs are currently exclusively available to our Stocks & Shares ISA customers.

Risks of thematic investing 

Before investing in thematic funds, it’s important to highlight that they are best used to compliment rather than replace your existing core investments. That’s because they have a narrower exposure and higher risk profile to more traditional – sometimes seen as ‘safer’ – investments.

If you invest in thematic ETFs and funds, you’re effectively making a triple bet that you will be:

  • Picking a winning theme that expands and grows in the future
  • Selecting a fund that is well-placed to survive
  • Getting into the trend before the market has priced-in the theme’s future potential

If the risk-to-reward potential of thematic investing suits your individual appetite for risk, open a Stocks & Shares ISA to invest in our range of thematic ETFs. Just remember, investing carries a certain amount of risk, and you might get back less than you invest. That’s why it’s important to invest for more than five years, to give your money time to recover from any dips along the way.


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Examples of thematic ETFs

Here are some examples of the thematic ETFs we offer.

We offer more ETFs in-app, as well as a range of tracker funds for different areas like global shares, property, emerging markets and more. Open a Stocks & Shares ISA to get started.


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