What does investing in thematic equities involve?

Learn everything about thematic equities and the returns they can offer

Themed investing consists of investing in assets that involve exposure to some long-term trend, in order to obtain an attractive return.

What common characteristics do themed funds have?

1. They usually focus on certain sectors and/or industries that are related to the trend which the fund intends to be exposed to.

2. They generally invest in small and medium-sized companies that are growing or those in which a high growth is expected.

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Are all themed funds the same?
No, they can have very different risk and/or return profiles. Moreover, oftentimes the line that separates a themed fund from another type of fund is very thin, and it is open to interpretation.

Themed funds can be categorized into 3 major groups:

1. Those that seek a higher return, with a high risk (higher risk/return profile): Here we would find themes with a high growth potential, such as those related to the technology sectors.

2. Those that seek a more moderate return, with a lower risk (lower risk/return profile): This would include themes with lower but more stable growth, such as those related to infrastructure.

3. Others: those that do not fit a specific risk/return profile and that usually show greater fluctuation in their results compared to the traditional stock market. This would include funds such as those related to gold mining.

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What risks are there with this type of investment?
The main risk lies in correctly identifying the winning trends and the companies that will benefit from these trends.

As with all other investments in equities, the final results will come from the profits of the companies in which the fund invests and from investors' expectations, which we will see reflected in the assets' price. These prices may experience significant fluctuations.

On the other hand, there is less diversification in this type of investment compared to other equivalent investments in equities, as these funds focus exclusively on one segment of the market. This concentration of the investment entails a risk for the investor.

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