Investing in a pooled fund allows you to put money in different assets at once simply by buying 1 instrument. Fund managers follow different methods when choosing assets to include in a particular fund.
They may build a fund to mirror an index, follow an asset allocation strategy, or focus on a particular industry, region, or asset type.
Others maintain a certain “theme” to create thematic funds. Learn all about this type of investment fund below.
What is thematic investing?
Thematic investing involves putting money in assets that fall within a certain trend or theme but may not fall under the same sectors, industries, or geographic locations.
For example, a clean energy-themed fund may invest in electric vehicle makers, solar and wind energy companies, and technology firms that develop renewable energy systems.
Themes typically include new or emerging classifications like artificial intelligence, renewable energy, and social responsibility.
You can build your own portfolio to represent a theme or pick an existing fund that contains similar investments.
Should you invest in thematic funds?
Thematic funds can allow you to invest in a trend or in related products that reflect your values or expectations for the future. Such funds may be worth considering if they have the potential to meet your investing needs such as:
1. Growth potential
Themed funds tend to represent fast-growing investing trends and ideas that are expected to become more important – and therefore more valuable – over time.
A thematic fund may suit you if you’re investing for growth and believe strongly in the future of a specific trend.
Take note that it may not be a good idea to invest in assets just to follow a trend. Before buying into the hype, find out whether there are solid factors fueling the growth so you won’t fall victim to a bubble waiting to burst.
2. Diversification
Assets in a themed fund may not be restricted to certain sectors, asset types, or countries, and so they may help you spread risk and tap into global markets.
However, adhering to a theme can also be more restrictive than opting for broad market funds, especially if the theme is highly specific.
A thematic fund may complement your other investments, but relying on just 1 fund might not be enough to help you properly diversify your portfolio against risk and meet your financial goals.
3. Personal values
Some people choose investments that align with their personal beliefs and interests. If you want to invest for social or environmental good, you can consider funds that focus on those themes.
Before investing, it’s always wise to check the assets within a pooled fund. Find out whether they truly offer long-term value, match your risk profile and goals, and align with values you wish to uphold.
