In its simplest form, thematic investing is an investment approach that focuses on an overarching idea, understands how that idea might create lasting change, and uses this idea to find companies driving or harnessing this change. Thematic investing can therefore provide investors with new avenues for their investments. It essentially enables investors to identify companies that will take them beyond their usual predispositions – i.e. the ideas they believe will perform best over the long term – by following a theme.
Theme – strength, long-term, secular
Investing according to themes gives investors access to those businesses that benefit from the structural and lasting changes we see in our world. The advantage of this approach is that these stocks are often better able to withstand general market volatility, as share prices are more closely linked to the theme than broader market factors.
If the chosen theme plays out as predicted, the share prices of individual businesses driving or harnessing change are often driven by the growth and momentum in the theme rather than the cyclicality and sentiment-led returns of wider equity markets. In other words, the underlying growth of a theme is the principal driver of its return for investors. Investing by theme can help navigate around the fixed categorisation of indexes, such as the S&P 500, by providing access to companies across multiple categories or industries within one theme.
At First Trust we have identified two strongly-interlinked megatrends that we believe are set to dominate our landscape for the long term – human innovation and longevity. Within these major trends, disruptive technology – innovation that drastically changes the behaviours or operating habits of consumers and businesses – has been a prominent driver of change in the economy, inspiring multiple key themes we believe will fuel future profits.
What is disruptive tech?
Disruption alters the status quo. Disruptive technology represents those powerful forces that irrevocably alter our lives through technological innovations. To qualify as "disruptive", a technological innovation, such as the smart phone, must completely overhaul or replace the process or processes that preceded it.
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