What is Thematic Investing and Should You Care?

Jade Ong

You can be a savvy investor without living and breathing the stock market thanks to a brilliant concept called thematic investing. This might sound overly simplistic but all it takes is an understanding of the world around you – how it’s changing, where it’s going and who is leading the way.

But what does it really mean to invest in where the world is heading? A rapidly evolving world is what has given rise to thematic investing, so let’s start there.

What is thematic investing?

Thematic investing is simply about identifying and investing in trends set to change the way we live now and in the future. Trends that are likely to shape our world and economy by shaking up traditional industries.

Some trends come and go (acid wash jeans, piano keyboard ties) but the world’s megatrends – whether they’re economic, political, technological, environmental or social – are here to stay for years to come.

Although these advancements occur more frequently than ever and involve a multitude of players, once you discover the underlying theme/trend uniting them, it narrows your focus to a few key megatrends being driven by a small cluster of companies.

A quote referenced by Steve Jobs sums up the logic behind thematic investing, and also reveals why Apple continues to be one of the major drivers of thriving global trends:

“A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” – Wayne Gretzky

In other words, a good investor will invest in the future, not the past.

It can’t be that simple, right?

We get how this might be sounding a little too good to be true: identify a trend, invest in the biggest companies creating the trend, wait for the returns to roll in.

If it was so simple, everyone would be doing it. Well, that’s precisely what we hope will happen eventually – sooner rather than later.

There’s one striking example that reveals the simplicity of thematic investing while illustrating why anyone could capitalise on world trends. It comes from a Bloomberg report sent to 247wallst.com claiming:

“Just 14 stocks have created 20% of all stock market gains in dollars since 1924.”

The 14 companies providing 20% of the stock market wealth generated in close to a century have one thing in common – they were all leading a critical global trend.

Who led the pack then and now?

Amazon, Apple and IBM all made the list as they were ahead of the pack then just as they are now as booming tech stocks.

A few of the companies listed used to influence trends, but lagged behind in the last decade due to outdated business models or slow technology adoption.

Recognising when companies are no longer dominating certain trends isn’t as complex as you might think, as you’ll be able to predict when a trend is being phased out or a new one is on the horizon provided you’re keeping yourself informed.

We’ve spotted a few megatrends ourselves that we believe will be just as relevant now as they will be in the future, all while providing the basis for long term investment returns.

Online Shopping

You know when one industry is worth more than an entire country’s economy, it’s a trend worth looking into.

The online shopping industry is worth US$1.9 trillion globally (now larger than Australia’s entire economy) and continues to grow rapidly.

Despite being such a large, fast-growing trend, there are likely decades more growing to do as the percentage of sales conducted online vs. offline remains comparatively low. Therefore, companies like Alibaba or Amazon have barely scratched the surface in terms of market share.

Shopping online in some form is ingrained in our everyday lives, and it’s set to become even more prominent with global e-commerce sales projected to reach US$2.4 trillion by next year.

Big Data

Data is pretty ubiquitous – it’s everywhere around us and we often produce and consume data without even being aware of it. These seemingly small data acts create enormous volumes of data commonly referred to as big data.

“Big data is the use of computing power to analyse large amounts of data in order to reveal patterns and trends in people’s lives.”

Companies that harness the power of big data to make sense of it and thus provide customers with better products, services and experiences are worthy of some investment attention.

What makes big data a megatrend is not only the fact it’s growing at an exponential rate but also because it’s a theme across many industries – whether it’s a retailer like Amazon or a search engine giant like Google.

Splurging Baby Boomers

There’s plenty to be said about a megatrend that taps into the economic potential of ageing.

It’s a trillion-dollar trend all about baby boomers (people born between 1946-64), the vast share of wealth they hold and what they going to spend it on.

Any company tailoring their products and services to the wants and needs of this cohort are helping drive this trend further.

Car manufacturers like Daimler (maker of Mercedes-Benz) and cruise ship companies are perfect examples of trend leaders catering to the evolving needs of an ageing population.

For more insights into megatrends and investing thematically, visit our blog.


About this contributor

Jade Ong

Jade Ong

Co-Founder, AtlasTrend

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.

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Peter Brown

You mentioned some trends which I found no fault with. It might have been useful to have mentioned some of the companies that are at the forefront of using big data and servicing the baby boomer cohort. To cite one example, you mention that "Companies that harness the power of big data ..... are worthy of some investment attention". What are these companies?

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Jade Ong

Thanks for the comment, Peter. The types of companies can be quite broad and we constantly monitor them at AtlasTrend. Hope these examples help: Companies leading the big data trend include Alphabet (parent company of Google), which arguably knows more about our internet habits than any other company, big data analysis software companies like Splunk, through to cloud software and data centre companies. For baby boomers, our research has led to investments in not only healthcare and pharmaceutical companies, but also in companies like Daimler and Royal Caribbean, who enjoy strong demand from this generation. Examples for the online shopping trend include online retailers like Amazon and eBay, through to global logistics companies like FedEx.

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