Thematic investing is a way to make investment decisions based on predictions about trends, rather than on past performance of the market or the fundamentals of a specific company. Any criterion or trend can be used to inform thematic investment. Examples include fashion, the age of a population, and the availability of natural resources. Thematic investment has both strong advocates and detractors, and it plays a growing role in the investment landscape.
One way that thematic investing functions is by making predictions about what kind of technology will be useful, successful and widely available in the future. For example, investment in anything involved in the growth of the Internet is a thematic investment decision. This was a hugely successful trend of investment in the 1990s. But the other side of this trend involved a crash that hurt many investors. Thematic investment can focus on any kind of technology, at any level. For example, the Internet represents a broad spectrum of investment. Narrower themes could include investment in email, social networking or online stores.
Social trends represent another opportunity for thematic investing. Any industry or type of investment is relevant so long as it is informed by an awareness of social developments. For example, investing in China because of its growing industrial capacity might make sense for thematic investors. More specifically, one could invest in the types of products and services demanded by China's growing middle class, under the assumption that prosperity will increase consumption. Other factors such as demographic change can be considered. For example, investment can take into account the needs and wants of aging baby boomers.
Political factors such as monetary policies, market regulation and international relations can also be capitalized through thematic investing. Part of this is the awareness that the governments of different countries can be big investors themselves. For example, a country whose infrastructure has been decimated by a war or natural disaster is probably looking to invest substantially in rebuilding. Politically isolated countries might be starved for investment in general. Countries that are trying to grow quickly might have more accommodating laws on foreign investment. All of these factors can be used to make thematic investment choices.
The availability of resources is yet another way of determining thematic investment. Resources that are scarce might become extremely valuable if they are essential. One important example is oil. Investors might look forward to an oil boom because of untapped resources in the United States. Others might invest in oil because they believe it is becoming scarce and therefore more valuable. Yet other investors might focus on green energies such as wind farms or solar technologies, figuring that an inevitable transition to more sustainable energy will make these sectors more profitable.
- Jupiterimages/BananaStock/Getty Images