Understanding thematic investing is one thing – actually doing it is another. Like anything, it can seem a bit daunting at first but we’re going to share a few tips and insights to help ease you into the process.
If you need a refresher or introduction into thematic investing, we’ve previously covered what it is and why you should care about it here. For those across the fundamentals, get ready to put your futurist hat on and find out how you could capitalise on the megatrends shaping our future.
Here are our top tips for getting the most out of thematic investing:
1. Invest in what you know
If you think cryptocurrencies are a hot ticket right now, but you’re getting lost somewhere between Bitcoin, Litecoin and an initial coin offering (ICO) – you’re probably not at the stage where you would feel that comfortable buying in.
One of the most successful investors of our time Peter Lynch has famously said:
“People buy a stock and they know nothing about it. That’s gambling and it’s not good”.
Warren Buffet shares Lynch’s sentiment around truly understanding and believing in what you invest in:
“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes”.
The underlying message within both statements from the notable investors is to harness your existing knowledge to narrow down what you’re already interested in, care about or have experience in.
You can then dive further into these trends, industries or stocks to figure out whether they’re worth investing in.
You might be thinking ‘well, it’s easy for these big shot investors to say, they pick stocks for a living. That’s not my day job’. And you would be absolutely right.
It’s far more straightforward and less arduous to identify a growing worldwide trend – you don’t need to be an expert stock picker, or have a finance degree to recognise transformational global trends and the companies behind them.
This is what makes thematic investing a fun, intriguing exercise. I know I just used the words ‘fun’ and ‘investing’ in the same sentence, but bear with me as I delve into just how enjoyable and simple it can be.
2. Focus on predictable trends
It’s not just about picking a trend from a hat, investing some money and waiting for it to grow – not all companies within a particular trend will perform equally, and not all trends will garner strong investment returns.
You’d want to follow Alison Sanders’ lead on trend spotting (after all, she tracks trends for a living) and look out for trends “that are so predictable, you can set your watch by them”.
These are billion or trillion-dollar megatrends like the rise of e-commerce (online shopping) or the growing population over 50 (baby boomers). You can probably relate to these trends as you or someone you know is contributing to them at an exponentially growing rate.
Such trends are not merely “dice rolls” as Alison puts it – they’re not hard to predict and don’t make you feel like you’re taking a punt on the next big thing.
We’ve adopted this approach (minus the dice rolls) in what we do at AtlasTrend by building a series of managed funds called Trends, which tap into global themes with strong, long-term growth prospects.
This approach removes some of the guesswork and complexity associated with investing globally.
3. Embrace the knowledge
If many years in financial markets taught me anything, it’s that investing thematically is a vehicle for discovering new and exciting things influencing how we live now and in the future.
When you think of a trend like online shopping, a retail giant like Amazon immediately springs to mind. But did you also know Amazon is leading the way in cloud services, robotics, and of all things, the grocery market?
Once you dig deeper into the trends such companies are leading, you can get advanced notice of potential future products and services by looking into their own investments and patents.
Investment and patent activity may seem like quite data-heavy, dry topics – and they often can be – but when it comes to trend-driving, innovative companies, it gives you a window into the future.
Whether it’s autonomous vehicles or cancer-detecting robots, getting some extra insight into the companies you know will help you decide whether to invest in them.
Plus it doesn’t hurt to learn something wildly interesting along the way – growing your general knowledge as well as your investment know-how.
For more insights into investing thematically and internationally, visit our blog.
Jade has over 15 years’ experience in corporate advisory and investment management. Prior to joining AtlasTrend, Jade worked for 9 years at Macquarie Capital, the advisory arm of Macquarie Group, based in London and Sydney.