Thematic investing

Author name:: By Ashley Sim
Job title:
Date posted:: 09 June 2021, 4:00 PM

Over the past few years, thematic investing has become prevalent in Australia and around the world. This investment approach involves identifying key trends (or megatrends) and investing in a portfolio of companies that benefit as this unfolds.

The rise of this investment strategy has resulted in an increasing number of thematic exchange traded funds listing on the ASX. This allows investors to access a pre-made portfolio of stocks benefiting from a megatrend through a single trade.

Global megatrends

Renewable Energy

One global trend currently unfolding is the transition to clean energy. This massive undertaking sees aging coal-fired powerplants replaced with renewable energy sources such as wind and solar, in addition to a significant reduction in the use of diesel and petrol vehicle engines.

A recent catalyst for this adoption has been Joe Biden re-entering the Paris climate agreement which would see the US cut emissions from the power sector to net zero by 2035. Most other developed nations, especially in Europe have similar targets.

To achieve these targets, a heavy reliance will fall on battery storage technology. This is integral for powering electric vehicles, providing grid stability, and storing excess solar commercially and within the home.

According to a study by Bloomberg in 2020, by the mid-2020s electric vehicles are expected to reach price parity with internal combustion vehicles across most segments. This reduction in price is expected to coincide with a massive increase in demand for electric vehicles.

As a result of these catalysts, it is expected the green energy and battery technology industries will experience high levels of growth as the world inevitably switches to this technology over the coming years.

Cybersecurity

Recent years have seen a large rise in adoption of technology. In addition to the home environment, it has formed critical infrastructure for government and business. Whilst this has provided many benefits, it has also increased the prevalence of cybercrime. In the past few years there have been several high-profile attacks which have caused major disruption and expense.

In 2016, the Australian Bureau of Statistics (ABS) suffered a cyber-attack aimed to sabotage the census which caused significant public mistrust in their systems. Additionally, the logistics company TOLL has suffered two major cyber-attacks resulting in the need to close numerous internal and customer facing systems. This was a form of ransomware where systems are locked down until the target pays a hefty ransom to release their systems.

Given the large detriment cyber-attacks can have; companies, governments, and individuals are forced to invest in protecting their systems from these assaults. Given the large expenditure in this area, it presents an opportunity for companies that provide protective software and defence against these attacks. Investors in these companies could benefit from the growth in this sector.

Further Megatrends

In addition to the megatrends elaborated above, other high growth areas include:

Automation & Robotics – with advancing technology, many jobs that were previously completed by humans can be automated through robotics and artificial intelligence. Key disruptions include companies involved with agriculture, 3d printing, healthcare, big data, and manufacturing.
Video Gaming & eSports – the 2010s has seen the rise in “eSports” where gaming has gone beyond individual playing to spectating and competitive gaming. Some of the top tournaments are now drawing crowds that rival the Olympic Games or the Football World Cup.
Biotechnology – a sub industry within the healthcare sector which invests in companies involved with drug and pharmaceutical development. The Coronavirus pandemic has demonstrated the importance of this sector greatly in the timely response to global health issues.
Ageing Population & Healthcare – around the world there is an increasing demand on health care systems as western populations age. This presents many opportunities for companies benefiting from the increased demand.
Rise of Asia – the increasing wealth through China and other parts of Asia has seen a rising middle class who is young and technologically savvy. As a result, there is an increasing adoption in technology throughout the content and the affluence of the consumer is also increasing the market for luxury goods, which presents opportunities for companies producing these products.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited (Morgans) AFSL 235410 ABN 49 010 669 726 as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.