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Created on 11.08.2023

Thematic investments – how to invest in megatrends

Big changes have always been a part of the world we live in. Right now, for instance, we are tackling climate change and the energy transition it entails, artificial intelligence, social changes and many other challenges besides. As an investor, you can participate in these changes through thematic investments, even with very small sums of money. Find out how thematic investments differ from other investments, what trends are currently shaping the market and what investment options are available to you if you want to participate.

What are thematic investments?

Thematic investments are investments that focus on a specific theme, such as renewable energy, artificial intelligence, food or water. If you make thematic investments, you attempt to identify long-term, macroeconomic trends and to acquire shares in companies that may benefit from materialization of these trends. After all, national economies and companies, and so in turn investments, are influenced by megatrends of this kind in the medium and long term. This is clear from topics such as climate change, the energy transition and even the digital transformation. Megatrends are defined in various ways. Yet they always have one thing in common: the changes that megatrends entail shape every level of society over a long period of time and on a global scale. With thematic investments, investors aim to expand or supplement their portfolio so that it benefits from these changes and also gains in value.

How do thematic investments differ from other investments?

Thematic investments differ from other investments in particular due to their focus on themes and megatrends. Traditional investments, by contrast, are geared more towards specific indices, industries or regions. Thematic investments are also defined by the following features:

  • While some megatrends and themes have effectively arrived and are already having a profound impact, others are still a matter of speculation. As an investor, you can generally invest in specific themes at any time. Many investors expect a greater chance of a return if they invest before the theme comes into worldwide focus. However, this increases the risk of the trend or company developing differently or of its relevance being lower than expected.

  • Investors who invest in themes tend to have a horizon of several years or even decades. They assume that the themes and (mega)trends they select will develop across a longer time frame and pay off financially.

  • Thematic investments, such as thematic funds, frequently offer solid potential for diversification. Rather than focus on individual companies, investors can invest in thematic funds, ETFs or themed certificates, which cover a wide range of companies that are already active in a certain field. To diversify further, it may be beneficial to invest in multiple themes, which ideally shouldn’t be too interdependent. Thematic investments are also suitable for investors pursuing a core satellite approach.

  • Many thematic investments have a social or environmental component. More and more investors are looking to invest based on their ideals and values. They look for companies that are making a positive change in society or offer solutions to pressing issues. This approach is also known as “impact investing” and aims to benefit from opportunities for financial returns while making a positive impact on environmental and social standards. However, thematic investments cannot automatically be considered impact investments, as impact investments have to fulfil certain regulatory requirements. Above all, investors have to be pursuing concrete environmental and social goals, and progress towards achieving these goals has to be measurable.

What are the biggest megatrends?

In view of the numerous threats to humanity and the environment, climate change and the energy transition this involves are amongst the biggest megatrends. The climate crisis generates and influences other trends in nearly all areas and is critical when it comes to the future of the world. In recent years, digital and disruptive technologies such as artificial intelligence have continued to gain in prominence, and they hold potential for long-term and profound changes. Social themes such as urbanization, demographic change and social inequality are often cited as additional megatrends. It goes without saying that these megatrends are viewed from today’s perspective, and there is no guarantee of how they will evolve in future.

What’s the best way for me to invest in themes and trends?

If you’re interested in thematic investments, there are many different options available to you. As for which is the best option, that’s something each investor must decide for themselves. All options have their pros and cons that need to be weighed up. Fundamentally, your investment should fit with your investment strategy and be an ideal supplement to your personal portfolio. The four most common investment instruments for thematic investments are funds and ETFs, company shares and tracker certificates.

Funds and ETFs

Funds and ETFs are popular investment instruments with investors who value diversification. For instance, they are often used to supplement existing core investments. As an investor, you can invest in a fund that has its total capital broadly diversified across the financial market. There are now a number of thematic funds that invest in specific trends, such as sustainable energy, robotics and e-mobility. You can invest small amounts in funds and ETFs, and with little effort. In the case of thematic funds and ETFs, it may be worth making various investments of this kind in order to diversify more. When selecting a theme, you should consider not only your own thematic preferences, but how the fund is composed, and bear in mind the following: thematic funds and ETFs can on occasion invest in smaller companies with lower market capitalization and liquidity. This may increase the risk and volatility.

Company shares

Another way to participate financially in current themes and trends is direct investing – for instance, through company shares. As an investor, you can purchase company shares that you believe will gain in value in future based on a trend. Purchasing individual securities requires more research from the investor in comparison to funds and ETFs that are more broadly diversified, but in return, you can be more targeted with your chosen investments. If your assumption turns out to be correct, you can enjoy your share’s increase in value in the long term. On the flipside, the risk (of loss) is greater. Especially if it’s still unclear how trends are going to affect companies and the economy, there is a certain amount of speculation behind thematic investments, even after careful consideration. With shares, fluctuations and losses can have a greater impact than with more broadly diversified investment products such as funds. Generally speaking, though, they should never be ruled out, and investors looking to invest in securities must be able to absorb them.

Tracker certificates

Tracker certificates are classified as structured products and allow investors to participate in a trend or theme without investing in the relevant security directly. Instead, investors rely on the positive or (as the case may be) negative performance of an entire portfolio of securities, also known as a basket. This basket is more broadly diversified than individual securities, making it comparable to a fund, but it does come with the risk of the portfolio performing differently from expectations. This is why, even with tracker certificates, you should invest only a limited amount and ensure your choice is governed as far as possible by long-term thinking. PostFinance offers numerous tracker certificates.

Find out more about tracker certificates: 

Practical tips for your thematic investment

Thematic investments are not just an appealing way to gear your portfolio towards the future and, in the best case scenario, to increase your chances of making a return. They also enable you to invest in trends, themes and developments that are especially important to you. But how can you put together a thematic portfolio that’s tailored to you? We have the following tips for you:

  • As tempting as thematic investments may be, be sure you carefully consider what is right for you and what is compatible with your investment strategy. Ask yourself how much you are willing to invest and over what time frame, what goal you are pursuing and how much risk you are willing to accept. For the most part, thematic investments are geared towards a longer investment horizon, which is why you need to be absolutely sure about the theme and company you choose from the outset. It is still sensible to review your profile from time and time and to make minor modifications where necessary.

  • As with every investment, you should be well informed before you invest in specific trends and themes. Will the theme still be prominent in years to come, or is it just a flash in the plan? Of course, this isn’t something you can ever fully predict. So be sure to look for comparative data and – where available – information on previous performance. Even if this is no guarantee of future performance, it can still serve as an initial information base. Banks and other financial companies can provide you with an overview of specific investment products and enable you to read up on them. It’s generally advisable to opt for a trustworthy provider with some experience in thematic investments.

  • It isn’t always that straightforward to select themes based on your own investment strategy. If you’re keen to start with thematic investments but don’t want to take too much of a risk, you could consider the following: make several small-scale thematic investments over a longer time frame that focus on different trends. This will ensure you are more thematically diversified, and you will be better equipped to weather any fluctuations. After a certain period of time, you can assess your investment’s performance, as well as the trend’s general progress, to decide whether to make any modifications. The funds saving plan is a simple solution offered by PostFinance that enables you to invest in various trending themes on a regular basis.

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