Thematic Investing

Thematic investing usually evokes mixed reactions from investors & advisors.

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Every year, the sector rotation images (sector wise performance in descending order) make investors check into their portfolios if they own the same. Advisors then have a tough time explaining why they didn’t recommend these sectors, themes and if they had, why didn’t they recommend more allocation. Asset allocation, financial goals & risk controls are good guiding principles, but everyone loves a juicy, alpha in the portfolio screaming, ‘you got it right’. Discerning advisors find this noise and information overload difficult to ignore as this sometimes may get in their way to creating a robust portfolio for their investors which is in line with their clients’ financial goals.

Let’s get the basics right. A thematic investing discussion is not an incorrect one. There are themes which do well and can be above the market or economy’s average growth rate. However, when this discussion is done is important. A thematic investing is suitable after a core portfolio has been created. A core portfolio would be something which achieves most of the financial goals of an investor. Post that, a satellite allocation in themes may help an investor to achieve their financial goals by participating in the relevant ideas. Thematic calls are complementary to the core portfolios.

Scheme classification is based on market capitalization, i.e., size of companies.