Whether you're new to the stock market or a seasoned investor, you're probably aware that there are different strategies you can choose from.
Some are as simple as investing in growth stocks, dividend stocks, or value stocks, but there are also more creative investing strategies. These are sometimes referred to as thematic investing.
What is thematic investing?
Not surprisingly, thematic investing refers to investing according to a certain theme. There are no hard-and-fast rules as to what themes qualify, but they tend to focus on future changes such as disruptions, new technologies and megatrends, sustainability, founder-led companies, or subsectors like electric vehicles and cybersecurity.
These thematic baskets are generally put together by brokerages or ETFs, but investors can also invest in such themes on their own.
What you should know about thematic investing
Thematic investing is useful if there is a specific industry, technology, or emerging market that you want exposure to. It's also helpful if you want your portfolio to reflect your own values.
One classic example of thematic investing is ESG investing, or investing based on environmental, social, and governance factors. ESG investors take into account the impact that their investments are having beyond the bottom line. For instance, ESG investors may consider the environment, rights and opportunities for underrepresented communities, and governance, including representation in its board of directors.
Another popular thematic approach that takes a different tack is focusing on sin stocks, which include alcohol, tobacco, and firearms stocks.
Thematic investing also gives investors a way to invest in a particular group of stocks that don't belong to a more conventional grouping, like growth stocks, China stocks, or oil stocks.
The strategy isn't necessarily better than investing without thematic funds. Whether you beat the market will depend on the theme that you choose.
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