Thematic investing provides diversification as well as access to long-term growth drivers. Thematic investing seeks to take advantage of predictable global trends such as population growth, aging, and urbanization, as well as technological developments such as AI. Sectors of the economy that benefit from these long-term trends are likely to deliver above-average revenue growth over the entire economic cycle. This form of investment offers opportunities beyond traditional index orientation, as such themes can include small- and mid-cap companies that are not included in well-known benchmarks.
In our view, certain themes look particularly attractive at the moment, such as water scarcity and digital data.
- Water shortage: The number one long-term investment theme this month is “water scarcity.” Aging infrastructure, rising living standards and increasing industrialization in emerging markets are putting increasing pressure on the world's water infrastructure and its allocation. This trend should benefit some companies involved in wastewater purification, as well as suppliers of equipment for water exploration, distribution, and treatment. This theme leans toward small- and mid-cap opportunities, consistent with our preference for U.S. infrastructure beneficiaries and industrial sectors. In the fixed income space, we believe investment grade municipalities with a focus on the water and wastewater sector offer similarly high quality opportunities. According to RBC Capital Markets, the value of the entire water market exceeds US$655 billion and is expected to grow at an average annual rate of mid-single digits over the next few years.
- Digital data: Driven by the desire to stay connected and the need to efficiently multitask throughout a busy day, most of us are generating unprecedented amounts of data. We believe favorable demographic and other long-term trends will drive robust data growth. With technology convergence accelerated by generative AI, his five enabling technologies – artificial intelligence, augmented reality/virtual reality, big data, 5G, and other moonshot technologies – will transform many industries in the coming years. It will be. Over the next five years, the total amount is expected to increase by an average of 26% per year, from 324 billion USD in 2022 to 1 trillion USD in 2027.
Diversification within themes helps optimize risk-adjusted returns. Investors can choose a wide range of themes that reflect their interests, from gene therapy and oncology to the circular economy and food revolution. However, strategies that provide exposure across a variety of themes can provide greater diversification, and active management can ensure that emerging investment trends are not ignored.
Main contributors: Michelle Laliberte, Alexander Stiehler, Matthew Carter
