Thematic investing continues to attract strong capital flows as investors target disruptive megatrends with above-average growth outlooks.
At STOXX we have advanced thematic investing since 2016 and count 12 themes-based indices tracking modern concepts that arise from the three broad megatrends of demographics, climate change and technology. They cover ageing population, automation & robotics, breakthrough healthcare, digitalization, blockchain, fintech, digital security, sharing economy drivers, artificial intelligence and nanotechnology.
The indices are grouped into two main classifications according to their stock selection method: nine of them have a revenue-source thematic approach, while the remaining three use an innovative artificial-intelligence system that finds those companies most exposed to each theme. For a detailed explanation of both, please click here.
Seven new concepts to expand themes
We are now extending our thematic menu to include seven new revenue-based concepts. On Feb. 20, we introduced global equity indices tracking the following themes: Housing Construction, Industry 4.0, Millennials, Sharing Economy, Silver Economy, Smart Cities and Smart Factory.
The new concepts have been selected to ensure there is cross-industry, long-term growth potential, rather than being a temporary trend, said Inderpal Gujral, Head of Product at STOXX.
“The themes and concepts are chosen because they represent a real and significant transformation paradigm,” said Gujral. “Historically, when these megatrends occur, the pace of growth and adoption is unprecedented and powerful. They are the kind of drivers most investors would pay up to have in their portfolios.”
Each index selects those constituents from the STOXX® Developed and Emerging Markets Total Market Index with the highest (more than 50%) revenue exposure to business sectors associated with the concept in question.
For example, the STOXX® Global Millennials Index tracks companies with a majority of sales derived from 15 business categories. They include healthy food manufacturers, social media/networking groups, wearable/fitness equipment manufacturers, e-commerce companies, smartphone/smart device manufacturers and off-price/mass retailers.
Each index seeks to capture the thematic concept in an investable way that preserves replicability and liquidity. Only stocks with a pre-established minimum trading volume are eligible.
At Pulse Online we plan to cover each one of the new indices in more depth in upcoming articles.
European thematic ETF assets grow
Thematic investing has captured investors’ ambition to benefit from global megatrends. In particular, exchange-traded funds (ETFs) following a themes-based approach have emerged as a low-cost way to target these strategies.
Assets in thematic ETFs in Europe have increased almost sevenfold since 2016 to nearly 7 billion euros, according to Morningstar.1 The iSTOXX® FactSet Automation & Robotics Index underlies one of the industry’s most popular funds.
The characteristics of thematic portfolios
Thematic investing helps investors position themselves at the source of unique and seismic growth potential through the early identification of big shifts with long-term effects over society. The portfolios rely on a predictive assessment of future growth as opposed to past performance; they place bets on longer horizons than does the traditional equity allocation; and provide diversification from the sector allocation of market-capitalization-weighted indices.
Visit us in coming weeks as we explore the economic rationale driving our new thematic concepts.
- iSTOXX® FactSet Ageing Population Index
- iSTOXX® FactSet Breakthrough Healthcare Index
- iSTOXX® FactSet Automation & Robotics Index
- iSTOXX® FactSet Digitalisation Index
- STOXX® Global Fintech Index
- STOXX® Global Artificial Intelligence Index
- STOXX® AI Global Artificial Intelligence Index
- iSTOXX® Developed Markets B.R.AI.N. Index
- iSTOXX® Yewno Developed Markets Blockchain Index
- STOXX® Global Digital Security Index
- STOXX® Global Sharing Economy Drivers Index
- STOXX® Global Housing Construction Index
- STOXX® Global Industry 4.0 Index
- STOXX® Global Millennials Index
- STOXX® Global Sharing Economy Index
- STOXX® Global Silver Economy Index
- STOXX® Global Smart Cities Index
- STOXX® Global Smart Factory Index
1 Kenneth Lamont, ‘Is My Thematic ETF a Fad?’ Morningstar, Nov. 8, 2018.