The Rise of Thematic Investing
In the early nineties, when all things internet were gaining speed, a shrewd investor could catch the trend. It didn’t take long for hundreds of software and computer hardware stocks to appear, though; it was a noisy niche. There was a dot-com boom, and it was soon impossible to spot stocks with a special something buried beneath dozens of fakes.
You could get the broad strokes right (the internet is not a fad), but fail to pick the winners (Microsoft or Apple). You’d have gone broke if you’d picked AltaVista or Compaq, so investors have gotten used to treading carefully around new trends. This is changing!
You can invest in thematic exchange-traded funds (ETF) that bundle together stocks in specific arenas; esports, cannabis, robotics, you name it. You don’t look for the needle, you buy the haystack, so to speak. You get diversified exposure in one investment.
These things are launching left, right, and center in lockdown. We have ‘NERD’ for esports and ‘BETZ’ for sports betting and iGaming since June 4th. These join sectoral and geographic indexes like ‘JETS’ (airlines), which has almost doubled its assets under management (AUM) as investors bottom-fish for coronavirus bargains.
“Thematics are capturing investor attention in a way that very few other things do,” said Phil Mackintosh, senior economist for the Nasdaq. They do what they say on the tin, and represent 40% of the value traded in markets today.
The snag? Fees. It’s prudent to check a fund’s expense ratio before investing. Make sure it’s less than one percent. You don’t want to pay more than one percent per year to a fund manager for rebalancing, adding, and subtracting stocks when you could do it yourself.
These things are like super-simple hedge funds, and their popularity is growing. The question is whether more passive investing creates more opportunities for the active pickers out there, and, as we’ll find out over time, whether thematic funds work!