The definition of thematic investing?

At worldwise Investor our thematic fund range is biased towards environmental themes, such as water, clean energy and forestry, but also includes demographic themes such as agriculture. This bias mirrors the investment options available to UK investors. These are investment themes which are closely linked to the core drivers identified above.

Expert Fund Management

Thematic investing is a style of investing which ignores geographical boundaries and asks fund managers to be experts in a particular investment driver or theme, knowing “a lot about a little,” rather than trying to know a little about all available companies. It is about finding companies responding to a particular human need, understanding how this need is being serviced from factory to consumer ( in investment speak ‘upstream’ and downstream’) and investing in companies which are well positioned to take advantage of these changing market conditions. Because few themes are constrained to one industry or geographical region, traditional research will often uncover only part of a major trend. By identifying and understanding relationships across sectors and regions, thematic research can give investors the edge over their contemparies, or as investment professionals like to say provide ‘alpha-enhancing ideas’.

Different share universe

The stocks which fund managers select within a thematic fund tend to be very different from those you might see within an index such as the MSCI World, or the FTSE 100. For example, Pictet estimate that only 10% of the stocks in their Global Megatrend Selection fund overlap with the MSCI World index, despite holding nearly 500 stocks. Thematic funds, due to their focus on emerging industries, tend to have a higher percentage of smaller companies in their portfolio compared to the major indices.