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What is thematic investing and why it could be a fad
Long-term investors are being urged to ignore market fads and instead focus on identifying major socioeconomic, environmental and technological themes, an industry expert has explained.
What is thematic investing and why it could be a fad
Long-term investors are being urged to ignore market fads and instead focus on identifying major socioeconomic, environmental and technological themes, an industry expert has explained.
In a media presentation, ETF Securities’ head of distribution, Kanish Chugh, highlighted the importance of thematic investing and why investors need to differentiate the long-term trends from market fads.
“The idea of thematic investing, it needs to be long-term trend, so you need to have government support and you need to have a demographic push behind it. If you don’t have those two, that thematic is a fad.
“A fad for example is a working-from-home ETF that was launched in the US last year or a COVID ETF,” he said.
Mr Chugh pointed out that investors had joined the climate change megatrend, which was one of the major benefactors from the COVID-19 recovery.
“Q3 was when we saw one performance and two flows and interest,” Mr Chugh said.
“Part of that was Biden coming into the presidency. Part of it was the green trade with governments around the world are saying, ‘Well if I’m going to get out of COVID, I need to boost the economy and the focus needs to be on 2050 and the climate goals’,” he said.
The ETF provider said the COVID-19 pandemic has seen a renewed focus on the health trend.
“The biotech industry, while it saw strong growth, that growth is beyond COVID because a lot of companies were hampered by the pandemic.
“You saw the focus being on hospitals’ lockdowns and treating COVID, so they had to stop their treatment and trials,” he said.
“The one benefit to biotech is there is more money and focus with the regulatory frameworks being eased because governments saw vaccines being developed from day dot to the first trials [quicker than anytime before], so that will be a big driver to the future of biotech,” Mr Chugh said.
Moreover, he admitted to expecting 2021 to be the year of "thematic investing", with retailers looking to take advantage of megatrends.
“This is the year of the thematic ETFs, and ETFs will go to the next level. There could be 30 to 40 launches this year from a mix of active and passive providers,” he said.
“I expect to see thematic launches where there are gaps in the market, particularly in the climate change and sustainability space, but I doubt we will ever see the niche areas that they have in the US.”
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