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

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

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.

 

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.