Investment Ideas for retail Investors: Thematic Investment

Investment Ideas for retail Investors: Thematic Investment


The coronavirus pandemic of 2020 is changing the outlook on physical, financial investment, and mental health, impacting everyone’s survival quotient across the globe. Relegated to the confines of their homes, people from over 214 countries and thousands of cities have tried to find solace in other activities to avoid boredom.

Summarizing the Market options, after an astounding drop of around 40 percent across major global indices in March, within 3-4 months, stock markets witnessed a dramatic recovery, some on the verge of reaching their lifetime highs, all made possible thanks to the brave resolve of the retail investor.

In Pic: Nifty showing 43% recovery

On the opposite hand, gold continued its outperformance from the previous year, with 17 percent returns YTD. According to the World Gold Council, gold-backed ETFs closed H1CY20 with a record of $40 billion of net inflows. In June, gold ETFs added 104 tonnes, taking global holdings to all-time highs of three,621 tonnes.

Also Read: Beginner’s Guide: Introduction to the Stock Market

With work from home restrictions in situ, retail investors armed with ample time and decent sums indulged in trading and investing. These retail investors, pumping in a mean of around Rs 8,000 crore a month through open-end fund SIPs for the last 18 months, took an interest in direct equity investing also.  

The returns from most indices are average at best, and fast analysis of an index returns concerning its constituent stocks will provide the required evidence. A study of Sensex 30 stocks’ last 12-month returns highlights the very fact that barring April – thanks to exceptional performances, only 50 percent of shares on a mean we’re able to surpass their index returns.

Over a previous couple of years, many active investors shunned investing in index or value funds and opted for growth and thematic investments in search of upper returns.

What is a Thematic Investment?

Thematic investments aren’t novel and are alive for a minimum of 20 years. Under this philosophy, unlike generic portfolios, managers seek robust, healthy, and a narrow set of companies with excellent prospects for growth, and offering tremendous opportunities for returns.

 Key Takeaways:

• Over the three years ending New Year’s Eve, 2019, collective assets under management in thematic funds grew nearly threefold, from $75 billion to around $195 billion worldwide.

• This represented approximately 1 percent of total global equity-fund assets, up from 0.1 percent ten years ago.

• A complete of 154 new thematic funds debuted globally in 2019, falling just in need of the record 169 new funds launched in 2018.

• by the end of December 2019, there have been 923 thematic funds in Morningstar’s global database.

• Europe is the largest marketplace for thematic funds, accounting for 54 percent of worldwide thematic fund assets.

• With over $27 billion in assets, Robotics and Automation is the most popular theme globally.

• Just 45 percent of all thematic funds launched before 2010 survived to 2020. Of those that survived, only one in four outperformed the MSCI World Index over those ten years.

These companies are grouped into various themes and offered to investors of all categories.

Themes can vary widely, from an easy market leaders theme comprising top leaders from each sector to a more futuristic subject with firms operating in areas like AI, smart cities, fintech, new-age manufacturing, and automation or from environmentally conscious businesses contributing towards social impact issues like health and safety, global climate change, etc.

Depending on their preference, investors can choose between a right sort of theme or maybe formulate their argument. E.g., Many investors give importance to corporate governance, ethics, and management’s capabilities to drive businesses successfully. Business groups in India like Bajaj Group, Tata Group, and lots of others, have established credibility and trust among stock exchange participants with diversified companies under their belt, can be selected as themes.

In recent years, chemicals – agro, primary, specialty, dyes & pigments – have seen remarkable demand and continued to enjoy higher price realizations for nearly a decade. A theme associated with chemicals would have ensured extraordinary returns to investors.

Identifying companies across sectors exhibiting the proper markers for exponential growth may be a humongous task. Still, if done right, it would ensure returns beyond comparison of any index, open-end fund, or PMS. Though easier to comment in hindsight on the performance of a selected set of companies, investment managers still do enormous research to zero in on the proper firms that can encash on the fiery growth, to deliver excellent returns. 

 At times, a diversified theme spread across many sectors can form the right portfolio and yield the simplest of returns. Would it be possible for any investment manager or a private investor to select ten stocks across FMCG, Finance, Chemicals, Capital Goods, Automotive, Healthcare, Discretionary consumption to make a perfect portfolio?  

Also Read: Investing Ideas: Complete Analysis for Hindustan Unilever

It is near impossible to select these ten stocks which have delivered the best of returns over multiple time frames. But, as investors look to shun low yielding products and seek investment avenues for higher returns, thematic investing could emerge because the way of the longer term and be the next generation choice for investments in India.

However, it’s imperative to carry the thought that identifying and investing within the right stocks or theme will accomplish only half the task. Patience and future holding, while continuing to retain a robust conviction, remain the key attributes to mitigate investment risk while seeking unmatched returns.

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