Is “Thematic Investment” worth considering?

Many investors may have heard about “Thematic Investment”, the latest trending investment buzzword.  This article will walk you through the thematic investment so you can consider whether or not it is worth considering. 

Thematic investment is an investment based on the world's evolving mega trends, taking long-term socio-economic trends into consideration along with analysis to determine the "theme" of investment, such as the transitioning to an aging society, expansion of urban society, development of public health, and medicine, or the growth of tech companies.  The trends will then be developed into investment portfolios, focusing on industries expected to most benefit from such long-term adjustments.

This type of investment differs from general mutual fund investments with investment objectives, time frames, criteria for selecting securities to invest in, and fund performance measurement.  Thematic investment focuses on long-term investments, aiming for returns from future changes, by investing in industries expected to benefit significantly from those changes, rather than focusing on generating higher-than-average returns in the short term. The time frame for this type of investment is usually longer than for general investment, normally more than 3 - 5 years.

Selecting stocks or securities to invest in may concentrate in any particular industry, matching your determined investment theme, such as healthcare stocks.  This feature can increase the risk of funds to level 7 (industry-specific mutual funds), unlike general equity funds whereby the investment is distributed to various industries to diversify investment risks.  Saying that thematic Investment carries a higher investment risk is not far from the truth.

In terms of performance, normally we would consider volatility and compare risk-adjusted performance to a benchmark index, such as comparing Thai equity funds to the SET Total Return Index or SET TRI Index, which combine returns from changes in the price of the SET Index with those of dividends.  When investing in Thai equity funds, we may consider whether that fund can beat the benchmark or not.  

Thematic investment may allocate investment weights according to the priority of the selected theme without caring much about the proportion of securities as normally offered in the market.  With this unique feature, the performance measurement of thematic investment is measured from absolute returns, emphasizing consistent positive returns rather than comparing it to market returns.

Interesting examples of thematic investment

1. Healthcare business: This is one of the most popular thematic investments in Thailand as it is in line with the country’s aging society trend and many people are now taking their health more seriously, particularly with the onset of the COVID-19 pandemic.  Fund investing in the healthcare segment will focus on the pharmaceutical and biotechnology segments, medical service providers, and medical devices. The advancement of medical science and technology has created more diversity among healthcare-related businesses, while also creating a more specific thematic investment, such as digital health and biotechnology.  Digital health focuses on investing in the segment that will help increase the efficacy of medication, while biotechnology can drive the development of innovations for various drugs for specific diseases.  

2.E-commerce:  Thanks to its convenient features, e-commerce is already a growth business.  Its popularity has accelerated even further during the ongoing pandemic, with most people forced to stay home and refrain from traveling.  Amid the booming industry, e-commerce infrastructure is becoming more and more, with communication technology upgrading from 4G and 5G and many user-friendly online shopping apps, leading to the advancement of infrastructure supporting trade, including receiving orders, warehousing, and distribution. These e-commerce ecosystem developments have allowed manufacturers to cut their costs, while consumers can enjoy convenient shopping using only their mobile phone.  The need to have a storefront or rental space has also been eliminated, allowing sellers to offer products at lower prices.  These are the reasons influencing both buyers and sellers to shift online. Investing in e-commerce themed businesses means buying stocks of retailers around the world with the majority of income generated from online trading, including related businesses that gain benefit from e-commerce such as logistics and packaging businesses.  Investors can either choose to invest directly in stocks or through mutual funds focusing on the e-commerce theme. 


3. Green energy: The trend of a clean energy investment theme arrived shortly after Joe Biden was sworn in as the US President. One of his dominant policies aiming to tackle the climate crisis and drive the US economy in the long term is his energy policy, especially clean energy.

One of President Joe Biden's announced green energy policies is to reinstate the US in the Paris Climate Accord.  He has also allocated USD 400 billion over the next ten years for investments in clean energy and innovation.  Recently, Biden announced that he plans to convert all vehicles used by government agencies to electric vehicles, produced and assembled only by US citizens.  His announcement has made clean energy-related stocks, alternative energy, and companies focusing on preserving the environment the focus of attention. Clean energy stocks around the world have benefitted from Biden’s policy, not just those in the US. 

However, investors choosing this green energy theme must closely monitor the next US election in four years.  If Biden does not win the election again or if there is a major political polarization shift, it is likely that a new administration will come up with a different set of policies.

In conclusion, thematic investment has an advantage in terms of setting clear investment goals to select a group of securities to invest in. However, there are risks involved that investors should be aware of.  To reap satisfactory returns, IT thematic investment may need a longer investment period than when investing in general funds.  This is because thematic investment focuses on the benefits of future changes, which may take some time before such companies can realize growth.  It may not be suitable for investors who want to invest in the short term.

In addition, this type of investment is relatively more concentrated in particular industries compared to general mutual funds. Therefore, it may not fit with those preferring to diversify their risks. However, thematic investment can also serve as a good mix with other investments to increase overall portfolio variety.  Investors should therefore weigh investment risk against their risk appetites before making any investment decision.


Nipapun Poonsateansup, CFP®, ACC


Independent Financial Advisor, Author, and Speaker