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Thematic Investing: 2023 Guide

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Thematic Investing: SmartAsset Guide

Investors use thematic investing to identify opportunities that could drive long-term growth. These types of investments are usually focused on a trend. Let’s break down how this strategy works, compare advantages and disadvantages for your investments and examine popular examples of thematic investing for 2023.

A financial advisor can help you create a financial plan for your investment needs and goals. 

What Is Thematic Investing?

Thematic investing involves extensive research to identify long-term trends. This investment style should not be confused with sector investing, which targets a particular company or sector. Thematic investors build a comprehensive portfolio that focuses on a specific trend and it’s common for a long-term trend to stretch across multiple sectors.

The process of this style of investing begins by discovering themes and categories that you believe will grow in the future. As an investor, you can choose to invest in a theme that aligns with your personal values. A few examples of themes include cybersecurity, rapid urbanization and social change.

Once you’ve identified a trend, you’ll need to find companies that reflect your investment goals and risk tolerance. And as your portfolio grows, you’ll need to rebalance it regularly to make sure it stays in line with your goals.

Advantages and Disadvantages of Thematic Investing

As with all investment strategies, there are some advantages and disadvantages to keep in mind. Let’s take a closer look two general advantages below:

  • Tap into high returns. Thematic investing can help you identify long-term opportunities and position your investments to profit from them.
  • Align investments with your personal values. Build an investment portfolio that supports both your financial goals and ideals for a future you believe in.

Here are two disadvantages of thematic investing:

  • Long-term trends may not work out. Research can help you make informed decisions. But you should also prepare for the possibility that a trend may not perform as well as expected. For investors that go all-in on a particular theme, they also have to consider the risk that comes with it.
  • It takes more time and effort than other strategies. Thematic investing requires extensive research to identify where you should put your capital. Alternatively, you can outsource the research to a financial advisor or invest in thematic ETFs that handle the research end for you.

Thematic Investing in 2023

Thematic Investing: SmartAsset Guide

Let’s take a look at seven popular thematic investing trends for 2023:

  • Women-run companies. This trend focuses in promoting gender diversity and identifying investment opportunities that are committed to it. Investors should note that these types of investments are relatively new, so returns on investments could be mixed.
  • Environmental sustainability. This trend focuses on creating both a more sustainable and prosperous world. Research could identify investment opportunities that are backed by the federal government in the form of climate change initiatives, as well as private sector investments.
  • Healthcare innovation. From healthtech to biotech, data and smart technology are revolutionizing the healthcare industry. And research could reveal new investment opportunities that are being created through innovation.
  • Transportation changes. Electric vehicles are appealing to a wide range of consumers. And as governments promote incentives and impose higher emission standards for gas-burning cars, electric vehicle companies are creating more models at cheaper prices that can perform better and take longer trips.
  • Media transformation. With print newspapers, magazines and other types of physical media becoming relics of the past, the way we consume news and entertainment is being redefined by digital platforms and streaming services. And this is opening the market for investors in many companies.
  • E-commerce reliance. Brick-and-mortar stores are being replaced by large and smaller retailers online. Technology is changing the landscape of retail and creating many investment opportunities in companies, software and platforms that can delivers services and products to consumers at the ease of a click.
  • Technology advancements. Semiconductors, cloud computing and software are becoming the backbone of many industries, including finance, education, construction and agriculture. And thematic investing can help you identify opportunities to drive long-term growth.

If you prefer to avoid the time-consuming research, you can also invest in thematic ETFs. Here are three to consider:

  • First Trust Cloud Computing ETF (SKYY): The focus is on cloud computing and other growing internet services.
  • iShares Global Clean Energy ETF (ICLN): Want to invest in global clean energy companies? ICLN could be a good option.
  • Amplify Transformational Data Sharing ETF (BLOK): If you want to invest in blockchain technology, this is a fund to consider.

Bottom Line

Thematic Investing: SmartAsset Guide

Thematic investing is an opportunity for investors to build a portfolio that aligns with their personal values. Research can also help investors identify opportunities for higher returns. But make sure to consider your risk tolerance before jumping into this investment strategy.

Thematic Investing Tips

  • Not sure what types of thematic investing work well with your investment goals? A qualified financial advisor can help you map out the best plan for your situation. Finding a qualified financial advisor doesn’t have to be hard.  SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Need help determining the appropriate asset allocation for your portfolio? Take advantage of our free asset allocation calculator to find the right fit.

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