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Thematic Investing in Global Markets

Analysing theme vs stock based investing.

Investors can hardly make sense of the financial world today. Its fast changing, loaded with information, and contains more signals than one can keep track of. Perhaps the worst of all, should the investor earn sub-par returns, there is no way to tell what went wrong so improvements can be made.


In the past few years, a solution has sprung in the form of Thematic Investing. Thematic investing simply creates a selection filter, away from all the noise. It’s based on a logic that investors can use to align their investments to their interests or expectations.


Smallcases / Vests / Stacks, even many ETFs are all versions of Thematic Investing – they pick equities or other instruments according to a theme (think selection filter) and let the market’s randomness and volatility takes care of the rest.


In the US, this style of investing has taken up a large form with the best names in the industry (Blackrock, State Street, Goldman Sachs among others) changing their offerings to include thematic investing – Attracting funds to the tune of $41 Billion.


They come in various forms,

  • Disruption focus such as Digitisation (e.g. Mobile payments), automation (e.g. Artificial Intelligence), or the shared economy, etc.

  • Big trends such as an Ageing population, or depleting resources affecting demand patterns.

  • Goal driven such as low volatility, etc.

Investing in such a manner simplifies finance from the complex technicalities of growth investing, value investing, or small-cap and mid-cap investing, down to ideas that investors can relate to. These ideas / themes are spread across sectors, geographies, market capitalisations, and are not limited to just one security, your theme can include equities, bonds, and commodities. As an analogy, we would say the traditional way of investing is like driving a manual transmission car with all its complexities of gears, clutch, and steering. While theme-based investing is like being in a self-driving automatic car which takes you smoothly from point A to point B.


Given such an agnostic approach, thematic investing can also have low correlation with other portfolio strategies. Perhaps its biggest advantage to an investor is bringing in focused diversification.


Let’s say our investor is convinced clean energy is the future. Ardour Global Index listed on the New York Stock Exchange is one popular index tracking the clean energy segment. 5 years ago, our investor could’ve invested in the clean energy basket as a whole to earn a very healthy return of 76%. Alternatively, she could analyse the companies in the theme and pick Vestas Wind Systems or Tesla, in which case her returns would be between 150% and 451%. However, with stock picking, the reverse is entirely possible, she could pick SunPower Corp. causing her to lose 60% of her investment.



Comparing returns of Clean Energy Theme vs Stocks (Source: Google Finance)

A successful theme in recent history and one that continues to hold promise is Digital Payments, having returned 113% since Jan 2017 owing to

  • Increased presence in EMs

  • Adding non-traditional card verticals

  • Integrated solutions for SMEs

  • And good old high adoption rates – in fact, such payment services are seeing adoption rates (65%) comparable to social media (67%).

  • High annual active users (40+ million for PayPal’s Venmo) show significant room for valuations to grow.

Fintechs: Valuation per active user ($) (Source: SAC Research)
IPAY Purefunds ISE Mobile Payments ETF 3Y Returns (Source: SAC Research)

The goal of Thesis, Stacks / Vests / Smallcase, through thematic investing, is to provide the investor with the basket and in the end, give the investor valuable knowledge of which investment ideas work for them and which do not. Dramatically simplifying the world of Finance.


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