Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 91

The growing trend towards thematic investing

Many of the world’s most serious social challenges are caused by secular forces such as population growth and demographic change, and the problems are expected to grow rapidly in coming years.

One approach to filtering investment opportunities may not be to choose a particular geography or sector but to identify stocks that are highly exposed to such secular investment themes. Investment themes transcend borders and sectors in the same way that they drive corporate strategy.

This realisation is supporting the growing trend towards thematic investing: an approach that identifies companies that are exposed to themes which offer solutions to the challenges of a rapidly-transforming world.

Thematic investing is perhaps best suited to investors with a longer-term investment horizon as well as those who are seeking exposure to an international portfolio of stocks. Thematic investing enables investors to take advantage of two opportunities:

  • identifying secular growth themes that will compound at rates in excess of the average over the long-term
  • identifying attractively-valued quality companies that use these growth themes and generate additional value on top by producing high returns above their cost of capital, and continuing to reinvest those returns for many years

We believe the following themes provide some of the best opportunities for investors over the long-term.


Education is one of the most pressing socio-economic challenges today. It is a major component of well-being and a key measure of economic development and quality of life.

Education spending is already very large, accounting for around 5% of global GDP. Expenditure is expected to continue to grow by at least 7-8% per annum until 2017. Factors driving this growth include higher enrolment targets, demographic opportunities (for example the booming population of 5-17 year olds in emerging markets), more women in education, the rise of the middle class in emerging markets and increasing global mobility.

Already, education is Australia’s third largest export after iron ore and coal but it is growing at a more consistent rate.

Energy revolution

Economic, environmental and political drivers are now combining to support rapid uptake in alternative energy. Renewable energy will constitute the vast majority of new capacity added during the coming decades as the likes of solar and wind are now cost competitive on an unsubsidised basis in many locations around world. Even Shell and BP project that renewables will dominate the global energy mix by the middle to end of the century.

Despite this, renewable companies account for less than 0.1% of global market capitalisation. As it will take some time for renewable technologies to achieve the necessary scale and infrastructure to challenge fossil fuel, the short to medium-term focus will be on solutions increasing the efficiency of existing uses (cars, batteries, lighting and buildings).

Ageing demographic

We are living through a period of rapid population ageing. Globally, the number of ‘older persons’ (aged 60 and above) is soon expected to exceed the number of children (aged under 5) for the first time ever.

Despite fears that obesity and global warming would reverse the trend, life expectancy in rich countries has grown steadily by about 2.5 years a decade or 15 minutes every hour. Falling birth rates mean some countries are heading towards a potentially catastrophic decline in population.

The spending habits of this cohort increases demand for a wide range of products and services, such as healthcare (drugs, hearing aids, orthopaedics, eye care, beauty products), aged care, and specialist travel. The US longevity sector alone is currently estimated at US$7 trillion.

Obesity, health and wellness

The obesity epidemic may be the most pressing health challenge facing the world because of both its direct impacts and ripple effects on chronic diseases such as diabetes. More people across the world now die from overweight and obesity-related illness than from starvation. The annual cost of obesity-related illness in the US alone is estimated at US$190 billion or nearly 21% of the country’s annual medical spending.

Food and beverage companies are going to have to increasingly focus on the quality of their portfolios given the rising spectre of fat and sugar taxes. Mexico, which has the world’s highest obesity rate at 33%, has become the standard bearer for sugar taxes, taxing sugary drinks at 10% per litre.

More broadly, the rapidly rising demand for and cost of providing healthcare is spawning innovation in areas such as DNA to use an individual’s genetic makeup to better tailor medical treatment. Immunotherapy is likely to become the treatment backbone in the majority of cancers during the next 10 years.

Technological change

Technological development is accelerating at a rapid pace as academic research and commercial enterprise become increasingly intertwined. Themes such as mobile connectivity, cloud computing, ‘smart city’ development and big data are just a few strands in a multiplying web of developments that have wide-ranging commercial benefits.

Technology is also revolutionising traditional production processes. 3D printing has the potential to rewrite the rules of localised manufacturing. Automation is driving a substitution from labour to machines given rising wages in emerging markets and the need for productivity gains and safety improvements.

Technological connectivity is enabling more companies to locate operations overseas. There is a growing focus on long-term solutions to the ever-growing and changing array of safety and security threats against people, governments, infrastructure and society, with terrorism, cyber security attacks and critical infrastructure breakdowns recognised among the top global risks today.


Urbanisation has been a defining trend in economic development for millennia but the past two decades have witnessed urbanisation at an unprecedented scale and speed. In 2008, for the first time in history, the human race became predominantly urban. By 2025, there will be 37 cities with more than 10 million people in them and only seven of them will be in the developed world.

Increased urbanisation in emerging markets raises living standards and causes a shift in the consumption habits of the population, but it requires significant investment in core infrastructure. At the same time, much of the urban infrastructure in the developed world is many decades old and in need of upgrade. In both cases, innovation is required to handle environmental and social issues, like water and waste.


Andy Gardner is a Fundamental Equities Portfolio Manager and Analyst at AMP Capital.


Most viewed in recent weeks

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Latest Updates

SMSF strategies

30 years on, five charts show SMSF progress

On 1 July 1992, the Superannuation Guarantee created mandatory 3% contributions into super for employees. SMSFs were an after-thought but they are now the second-largest segment. How have they changed?

Investment strategies

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.


Tips and traps: a final check for your tax return this year

The end of the 2022 financial year is fast approaching and there are choices available to ensure you pay the right amount of tax. Watch for some pandemic-related changes worth understanding.

Financial planning

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.


Listed infrastructure: finding a port in a storm of rising prices

Given the current environment it’s easy to wonder if there are any safe ports in the investment storm. Investments in infrastructure assets show their worth in such times.

Financial planning

Power of attorney: six things you need to know

Whether you are appointing an attorney or have been appointed as an attorney, the full extent of this legal framework should be understood as more people will need to act in this capacity in future.

Interest rates

Rising interest rates and the impact on banks

One of the major questions confronting investors is the portfolio weighting towards Australian banks in an environment of rising rates. Do the recent price falls represent value or are too many bad debts coming?



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.