Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 129

Investing by thematics rather than indexes

Investors are becoming increasingly frustrated at buying an index where they have little or no conviction around the thematics of some companies within the index. An example of this is owning the ASX200 which has companies that are in the gaming industry or in the business of selling alcohol.

Thematic investing will continue to build in Australia where investors follow themes or trends that resonate with them in a particular industry or sub-industry. It is already possible through more granular Exchange Traded Funds (ETFs) which are a low cost vehicle for investors to gain a thematic exposure.

Key thematics worth following

Some key themes that we follow include:

1. Changing consumer tastes

The internet has changed the buying patterns of consumers and enabled new retailers to emerge quickly and at a low cost compared with 20 years ago. Mobile connectivity has accelerated this even further. Based on some estimates, by 2020 there are expected to be over 40 billion devices connected to the internet. The majority of the growth is expected to come from emerging markets as internet penetration increases and consumer tastes change. This creates a huge opportunity – for example, one billion people in India conduct only 1% of their retail sales on-line. This is a huge opportunity for the likes of Apple, Google, Samsung, social media and telecommunication companies, cyber security companies and retailers such as Nike or other brands that can transition from high street to on-line without having to sacrifice margins. Some innovative ways to access this thematic is through the PureFunds ISE Mobile Payments ETF, the Global X Social Media ETF and the Emerging Markets Internet and Ecommerce ETF.

2. Energy and environmental awareness

China is currently dealing with the fallout from little to no environmental policies in the past and recent market moves have highlighted huge disruption as its manufacturing sector adjusts. It is working to find cleaner energy sources. Market estimates of an increase in energy consumption of 43% by 2040 would use an additional 40-50 million barrels per day. The world needs a new energy source to replace oil. Solutions are coming to market that could further improve and reshape the energy balance: cost curves for renewables are falling, solar is displaying profitable returns without subsidy, battery technology is improving and the cost of energy storage is declining. Winners are likely to be solar, nuclear and battery technologies that can produce a solution at a low enough cost to be adopted by industry. The iShares Clean Energy ETF or the Market Vectors Global Alternative Energy ETF provide a diversified exposure to this thematic including underlying exposures to Tesla Motors and Vestas Wind Systems.

3. Big data and cyber security

Big data, collecting and analysing client spending patterns is presenting huge opportunities in software. This is not new, but the tools to undertake the analysis are now more advanced, and improved storage and computing power have meant that no job is too big. Much of the development to date has been focused around building a big data strategy rather than spending the real money to implement it across the organisation. Accenture estimates that 73% of industrials are allocating 20% of their IT capex budget to big data. Credit Suisse estimates that applications across the industrial and consumer spectra could generate an estimated 10% compound annual growth in investment in big data to at least US$85 billion by 2026. The productivity gains to be harnessed as this is leveraged in industrial processes and automation are considerable, especially where the industrial ‘internet of things’ meets automation, robotics, additive manufacturing etc. The winners are the big players with a robust engine and scalable businesses such as Amazon, Microsoft, Oracle and cyber security. There has been significant growth in ETF’s that provide exposure to this thematic including the SPDR Morgan Stanley Technology ETF, First Trust Nasdaq CEA Cybersecurity ETF, First Trust Cloud Computing Index Fund and the PureFunds ISE Big Data ETF. This is probably one of the fastest growing areas in Global ETFs.

4. Aging population and maturing emerging markets.

People are living longer, in both developed and emerging markets. Healthcare is the big theme, looking after the elderly and sick. For companies that can effectively work with governments to improve the quality of life, and reduce the public burden, there are huge opportunities.

Environmental issues causing health problems in countries such as China and India are more endemic and ultimately there is heightened risk around regulatory or policy changes. Where ‘ageing’ is concerned, the two end markets that are most relevant typically lie across the healthcare supply chain and savings industry. A growth overlay to these end markets comes from emerging market, not just because of rising GDP per capita, but as the rate of ageing is now becoming more pronounced. It is now projected at twice that in developed markets out to 2035.

A therapeutic area of specific growth in healthcare is oncology and its related ‘immuno’ story, estimated as worth $35 billion in the end market. The challenge to healthcare generally is who pays the bills, and how? Winners are the big players that can implement broad solutions across geographies, and the hospital players who can provide low cost care and take the burden off the government. Accessing health thematics is not without pitfalls given that the risk of failure for a start up is very high. As a result, this thematic lends itself to investment through ETFs due to diversification across scale players. The SPDR S&P Biotech ETF and the SPDR S&P Pharmaceuticals ETF are two of the more established ETFs in this sector in the US, for an International flavour, the SPDR S&P International Health Care Sector ETF covers non-US companies.

Look for themes you are passionate about

These are just some examples of thematics that people can invest in for multiyear strategies, rather than chopping and changing looking for the next takeover. It is easy to see why this is a much more powerful investment proposition and most likely the way of future investing. Invest in something you know, a theme you are passionate about and stick with it because you will probably do better in the long run.

 

Michael Birch is Head of Equities at Mason Stevens Limited. These views are general and do not consider the personal circumstances of any investor.

 

RELATED ARTICLES

Ethical investing responding to some short-term challenges

Responsible investing is now retail and mainstream

banner

Most viewed in recent weeks

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

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.