Thematic investing explained

What is thematic investing?

Thematic investing is an approach that focuses on long-term global trends and themes, such as technology or sustainability, rather than specific sectors or market indexes. In other words, it identifies businesses that share a common driver, even if they sit in completely different sectors.

This strategy typically targets structural shifts that could transform the economy over several years or decades. For example, a ‘green energy’ theme might include solar manufacturers, electric vehicle makers and battery producers. These companies sit in different sectors (utilities, consumer goods and technology), but all share a common growth driver.

By looking beyond traditional sector boundaries, investors might be able to identify businesses that follow the same underlying trend. It’s a forward-looking way to organize a stock portfolio around the ideas and innovations shaping the future.

Always remember that past performance doesn’t guarantee future results.

How thematic investing works

Thematic investing starts with identifying what some call a ‘megatrend’, which is a large-scale, transformative force like artificial intelligence (AI) or the global energy transition. Research plays a vital role here, as investors look for emerging areas with high growth potential before they become mainstream.

Once you choose a theme, the next step is selecting assets that give exposure to it. Many investors use thematic Exchange-Traded Funds (ETFs) or managed portfolios to simplify this process. These funds bundle multiple companies involved in a single theme, giving individuals broad exposure without picking individual stocks.

It’s important to note that thematic investing can complement a diversified portfolio rather than replace it. And even so, diversification doesn’t guarantee profits or eliminate risk. Volatility and losses are possible in all market conditions.

Common investment themes

Global shifts can often create distinct investment themes. According to the International Monetary Fund (IMF), these trends frequently involve deep structural changes to how society functions. Popular examples include:

• Renewable energy and climate solutions, which focuses on the transition to a low-carbon economy.
• Artificial intelligence and automation, which covers the hardware and software driving the next industrial revolution.
• Aging populations and healthcare innovation, which addresses the needs of an older global demographic and new medical technologies.
• Digital transformation, which includes cybersecurity, cloud computing and the evolution of digital payments.
• Space exploration, which focuses on frontier technologies and the commercialization of the ‘final frontier’.
  

Benefits and limitations of thematic investing

Like any strategy, thematic investing comes with a specific set of advantages and risks that investors should consider factually.

Potential benefits

• Values alignment: It allows investors to align their portfolios with personal beliefs, such as environmental sustainability.
• Growth exposure: It provides a path to participate in areas with high-growth potential that may outpace the broader market.
• Cross-sector diversification: Because themes span multiple industries, they could provide a different type of diversification.

Potential limitations and risks

• Performance variability: Long-term trends don’t always translate into consistent or immediate financial returns.
• Valuation risk: Popular themes can sometimes become overvalued during periods of intense market hype.
• Concentration risk: If a portfolio is too focused on one theme, it may lack the stability of broader market diversification.

Read about the pros and cons of investing in stocks

Thematic investing vs. traditional investing

The primary difference between these styles lies in their focus. Thematic investing is trend-driven, while traditional investing is usually built on asset allocation (e.g., stocks vs. ETFs) or sector-based models (e.g., tech vs. energy). 

These strategies don’t have to be mutually exclusive. Many investors use a ‘core-satellite’ approach, where the majority of the portfolio is in traditional (core) positions and the smaller (satellite) positions are dedicated to specific themes.

Getting started with thematic investing

Crypto.com Stocks offers zero-commission trading on over 12,000 US stocks and ETFs, including fractional shares. So, whether you’re interested in technology and innovation or sustainability and environmental initiatives – you can align your trades with your interests, directly on the Crypto.com App. 

1. Download the Crypto.com App and create a Crypto.com Stocks account.
2. Explore thousands of available US stocks and ETFs.
3. Learn more about investing on our Learn Hub.
4. When you’re ready, you start investing in global themes.

FAQs about thematic investing

Is thematic investing the same as sector investing?
Not exactly. Sector investing groups companies by their specific industry (like banking or utilities) and thematic investing looks for a common driver that spans multiple industries. 

What are some examples of investment themes?
Common themes focus on transformative shifts in technology, society or the environment. Examples include Artificial Intelligence (AI), the transition to renewable energy, aging population healthcare and the expansion of the digital economy. These themes typically represent long-term structural changes rather than short-term market cycles.

Can I trade thematic ETFs with Crypto.com Stocks?
Yes, you can access a wide variety of thematic ETFs related to clean energy, robotics and big data. Crypto.com Stocks offers over 12,000 US stocks and ETFs with zero commission, allowing you to build a portfolio aligned with the global trends you find most compelling.

How much money do I need to start thematic investing?
With Crypto.com Stocks, you can start with as little as $1. This is possible through fractional shares, which allow you to buy a small piece of a high-priced stock or ETF. This makes thematic investing more accessible, as you don’t need to buy a full share of a tech or energy company to get exposure to a trend.

Foris Capital US LLC (“FCUL” or referred to herein as “Crypto.com Stocks”) is a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a Member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). For further information about FCUL, please visit FINRA BrokerCheck.
FCUL is a subsidiary of Crypto.com. 

Fractional shares are not available for all equities.

All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. Past performance does not guarantee future results.