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What is Thematic Investing? Glossary and Introduction

Thematic Investing is a term that refers to a top-down approach to investment, in which investors attempt to identify themes and trends based on their predictions of future performance, rather than making investment decisions based on past achievements of certain markets or assets. An example of thematic investing can be technological trends, in which an investor may predict the growth of self-driving cars or the global decline in the usage of   by a certain date. Thematic investments, which has become very popular in recent times, are divided into economic, political, technological, social and agricultural groups.  The popularity of thematic investments has more than doubled since 2016, with over 400 thematic ETFs (Exchange Trade Funds) in existence.

Listed below are some of the more common thematic investing related terminology:

Thematic Investing – Glossary

A-D

  • Agribusiness

Industrial-level manufacture & distribution of agricultural equipment, machinery, storage, etc.

  • Alpha

An irregular return on an investor’s overvalued or undervalued investment.

  • Asymmetric

The relationship between dominant natural resources suppliers and their customers.

  • Asset Allocation

An investment strategy in which the investor balances the risk vs reward percentages, according to the investor’s goals, investment timeline and risk tolerance.

  • Benchmark Unaware

An investment strategy that bases its investment on its expected returns, regardless of their Index weight.

  • BRIC Economics

Refers to the combined economies of: Brazil, Russia, India, China and South Africa.  These nations were grouped by economists because of their potential economic growth and influence.

  • CopyFunds

CopyFunds is a Thematic Investment portfolio management product developed by eToro.  Using eToro’s CopyFunds, investors can copy traders or markets.  The CopyFunds bundle together the investor’s financial assets in a diversified manner, in line with a predefined strategy to help minimise long-term risk.

 

  • Dollar Cost Averaging

An investing strategy in which the investor places a fixed amount of dollars into a given investment, on a regular, monthly basis. The investor buys more when the price lowers, and less when the price rises.

  • Deleveraging

When an individual or company reduce the level of debt by selling off assets if growth doesn’t go according to plan.

E-I

  • Emerging Markets

Countries that have the potential and infrastructure of fully developed markets but have yet to reach the economic maturity of those countries. Tend to be volatile.

  • GDP

The Gross Domestic Product is the measuring stick of a country’s overall economic activity, combining goods and services, usually calculated on an annual or quarterly basis.

  • Gorillas

Large companies or corporations that dominate their respective fields, controlling the price and availability of their products.

  • Hedge Against

To protect an investment from a decline in value by counter-investing, essentially making an additional investment.

 

  • Intrinsic Value

Represents the calculated value of a company, stock or security, taking into consideration tangible and intangible factors.  It may not always represent the market value.

  • Low Correlation

Thematic investing can offer a low correlation of relative returns to traditional growth strategies, and negative correlation of relative returns to traditional value strategies, offering diversification for investors.

  • Low –Theme Products

Technologies, services, and solutions that are immaterial to global revenues and/or growth, but are one factor, among others, for the business model, strategy and research and development ( ) of a company.

  • Longevity Economy

Represents the economic power of the demographic age group over 50, whose economic activity, now sitting at about $7 trillion, is expected to double to about $13.5 trillion by 2030.

M-T

  • Macroeconomic

A division of economics, studying the overall performance and behaviour of an economy, encompassing the changes in all aspects of the economy, including employment rate, inflation, growth rate, etc.

  • MSCI World Index

A central, global index covering thousands of stocks and commodities in various categories.  Used by fund managers worldwide as the measuring stick for the performance of portfolios.

  • Megatrends

Global economic forces (such as the rise of e-commerce or social shifts (millennials), impacting businesses and economies, societies, cultures and lives.

  • Opportunity Sets

All the conceivable expected returns, as well as standard deviations, resulting from the construction of portfolios.

  • Population Growth

The projected growth in population that exerts pressure on the global food supplies, land and global warming.

  • Portfolio Construction

Choice of themes, segments or areas based on market trends.

  • Rapid Change

The constant focus on secular changes and disruptive innovation can offer a portfolio hedge in a rapidly changing world and complement traditional index-based strategies

 

  • Sharpe Ratio

It is a measure of the risk-adjusted return of a theme. You can analyse the risk-return characteristics of every theme by the Sharpe Ratio. It explains whether the returns achieved in a theme are due to too much risk or smart investment decisions. On our platform, we have given a ranking from 1 to 3, with 3 being the highest risk ranking.

  • Super Cycle of Credit

The continuous cycle of financial credit, which ended in the global financial crisis of 2007.

  • Top-down/Bottom-up Investing

Top-down investment firstly analyses economic and global trends, then developments affecting particular industries, and finally which companies are expected to outperform in those industries, and investing on that basis. Bottom-up investment focuses primarily on companies to determine where to invest, with little emphasis given to economic trends.

U-Z

  • Urbanisation

The shift of population from city centres or rural areas to the suburbs.

  • Wrap Account

A method to consolidate an investor’s portfolio, for a fee.  The fee covers all management expenses & commissions for the account and is considered less costly than a brokerage account fee.

Summary

As thematic investing continues to grow in popularity among investors rapidly, the demand for reliable, diverse investment capabilities are more in demand than ever.  With eToro’s Top Trader CopyFunds and Market CopyFunds, long-term, low-risk investors are empowered to manage their long-term thematic investment portfolios with diverse themes and asset allocation suited to each investor’s preferred investment strategy.

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