Thematic Investing: A Deep Dive into Capturing Growth in an Evolving World
In the realm of investing, the allure of tapping into the next big trend can be irresistible. This is where thematic investing comes into play, allowing investors to bet on megatrends—transformative forces that could reshape the global economy. In this article we look at just some of the thematic ETFs designed to capitalise on these megatrends, such as the iShares Automation & Robotics UCITS ETF and the VanEck Semiconductor UCITS ETF.
Thematic investing is at the forefront of identifying the themes that are set to change the very environment we live, and it then looks to invest in the companies best set to benefit. – If you wish to find out more after this article please click here to book an introduction call with me: https://calendly.com/lewis-sell/introduction
Understanding Megatrends
Megatrends are powerful, transformative forces that have the potential to create lasting impact across industries and countries. They are driven by a combination of technological advances, demographic shifts, environmental changes, and economic developments. The core idea behind investing in megatrends is to gain exposure to the growth potential of ground-breaking sectors and innovations before they become mainstream.
Key Areas of Investment
There are several key areas ripe for thematic investing:
- Automation and Robotics: The iShares Automation & Robotics UCITS ETF invests in companies worldwide that are poised to benefit from increased adoption of automation and robotics in manufacturing, healthcare, and beyond.
- Clean Energy: The shift towards sustainable energy sources to combat climate change has led to the rise of the iShares Global Clean Energy UCITS ETF, which focuses on companies involved in the production of energy from solar, wind, and other renewable resources.
- Digitalization: This theme captures companies that stand to benefit from ongoing advances in technology, including cybersecurity, cloud computing, and artificial intelligence.
- Cyber Security: Involves protecting computer systems, networks, and data from digital attacks, unauthorized access, and damage. As our reliance on digital technologies grows, so does the importance of cybersecurity, making it a critical area for businesses and governments.
- Semiconductors: Focuses on designing and manufacturing essential components used in electronic devices to manage and control electrical current. This industry is pivotal for the advancement of technology, powering everything from computers and smartphones to healthcare equipment and automotive systems.
Performance and Growth
Since their inception, these ETFs have shown promising growth. For instance, the iShares Automation & Robotics UCITS ETF has consistently outperformed traditional industrial sector funds, reflecting the rapid adoption of robotics in various industries. Similarly, the iShares Global Clean Energy UCITS ETF has benefited from increased global investment in renewable energy, spurred by governmental policies and a societal shift towards sustainability, although recent years have been difficult for the clean energy sector as a whole, there is an expectation that annual capital investment in global energy sector is expected to rise to an average of USD 4 trillion per year through 2050 (source from BlackRock Investment Institute “tracking the low-carbon transition” July 2023).
Historical growth figures illustrate significant returns, though specific numbers vary by fund and over time. By speaking to an adviser you would be able to assess how these funds could fit your risk appetite and investment strategy.
Future Outlook
The future of thematic ETFs looks bright. Analysts predict that as technologies evolve and consumer behaviours change, these funds will capture substantial market share. For instance, the continued advancement in renewable energy technology and global clean energy initiatives suggest a positive trajectory for the iShares Global Clean Energy UCITS ETF.
Strategic Portfolio Inclusion
Including thematic ETFs in a portfolio can offer several advantages:
- Diversification: By investing in emerging sectors, investors can reduce risk through diversification.
- Growth potential: Thematic ETFs provide exposure to the growth potential of transformative industries.
- Innovation exposure: Investors gain an opportunity to invest in leading-edge companies that may define the future of their respective industries.
However, potential investors should be aware of the risks, as these funds can be more volatile than more broadly diversified ETFs. The success of thematic investments depends heavily on the trajectory of the underlying trends.
iShares Automation & Robotics UCITS ETF (USD) Performance Overview
The iShares Automation & Robotics UCITS ETF (USD) has shown dynamic performance over recent years, reflecting the volatility and growth potential within the automation and robotics sector. As of April 2024, the ETF has experienced some fluctuations but also significant growth phases.
- Year-to-Date (YTD) 2024: The ETF recorded a gain of approximately 4.88%, indicating a positive performance in the early part of the year.
- 1-Year Performance: Over the last year, the fund has increased by around 20.66%, demonstrating strong growth as the sector continues to expand.
- Long-Term Performance: Looking over the past several years, since its inception in 2016 the ETF has achieved a cumulative return of 151.71%, underscoring the high growth potential of the automation and robotics industries.
Holdings & Portfolio Insights
- The ETF holds a diverse portfolio of stocks across several sectors, but primarily focuses on technology and industrial companies that are leading in automation and robotics.
- Top Holdings: Includes significant positions in companies such as NVIDIA, SAP, Garmin, Intuitive Surgical, ABB Ltd, and Keyence Corp, which are integral players in the robotics and automation landscape.
- Geographic Exposure: The majority of the fund’s holdings are based in the United States (52.48%), Japan (14.38%), and Europe (10.80%), reflecting the global reach of the automation and robotics sector.
Investment Considerations
- Risk Metrics: The fund’s volatility is comparatively high, indicative of the higher risk and potential reward associated with the rapidly evolving tech sectors like robotics.
- Growth Potential: As industries continue to adopt more automated solutions and robotics technology, the ETF is well-positioned to benefit from these advancements, making it a compelling choice for investors looking for exposure to this dynamic sector.
iShares Global Clean Energy UCITS ETF (USD) Performance Overview
The iShares Global Clean Energy UCITS ETF has had a mixed performance over recent years, reflective of the volatility often seen in the renewable energy sector. The fund, which primarily invests in companies involved in clean energy production or technology, has seen notable fluctuations:
- One-Year Return: The ETF experienced a decline, with a total return of -28.23% over the past year, highlighting the volatility and challenges in the clean energy market during this period.
- Year-to-Date (YTD) 2024: As of the latest data, the fund has decreased by -11.53% YTD, reflecting ongoing market adjustments and sector-specific challenges.
- Long-Term Performance: Despite the fluctuating nature of the renewable energy market over the years the fund has shown 10yr cumulative performance of 45.71%.
Holdings & Portfolio Insights
- The ETF invests primarily in companies involved in the production or provision of clean energy equipment and technology. It excludes companies exceeding certain carbon emissions thresholds.
- Top Holdings: First Solar Inc, Enphase Energy and Vestas Wind Systems make up 3 of the top 5 holdings with those 3 making up 21.2% of the fund overall.
- Geographic Exposure: The fund has a global reach, including significant investments in both developed and emerging markets, with a large concentration in the United States (35.33%), the Eurozone (17.19%) and Asia Emerging (15.53%).
Investment Considerations
- Volatility: The ETF shows a high level of volatility, with a three-year standard deviation of 28.65%, reflecting the high-risk nature of the clean energy sector.
- Growth Potential: Despite recent setbacks, the sector’s growth potential remains supported by global shifts towards sustainable energy solutions and governmental policy supports in various countries.
First Trust Nasdaq Cybersecurity UCITS ETF Performance Overview
The fund is designed to give investors exposure to companies specialising in cybersecurity. The fund tracks the Nasdaq CTA Cybersecurity Index, offering broad access to this growing tech sector.
- One-Year Return: The ETF has seen a growth of 37.61% over the past year.
- Year-to-Date (YTD): As of the latest data, the fund has increased by 0.22%.
- Long-Term Performance: Since its inception in 2020, the fund has delivered approximately 66.69% cumulative return.
Holdings & Portfolio Insights
- The ETF predominantly invests in technology companies (over 87% of its holdings), particularly those in the cybersecurity sector. The remaining investments are in industrials.
- Top Holdings: Broadcom, CrowdStrike, Infosys, Cisco, and Palo Alto Networks are among its largest holdings, together representing over 31% of the portfolio.
- Geographic Exposure: It is heavily weighted toward U.S. companies (over 76%), with additional investments in Canada and Japan.
Investment Considerations
- Risk Metrics: The fund’s annualised volatility over the past three years is approximately 24.35%, meaning the ETF could be more volatile compared to broader indices.
- Growth Potential: Cybersecurity remains a high-growth area as organisations and governments bolster their digital defences, making this ETF a potentially strong addition to tech-focused portfolios.
iShares Digitalisation UCITS ETF (USD) Performance Overview
The iShares Digitalisation UCITS ETF, which focuses on companies that offer digitally focused services, has shown promising performance, reflecting the growth potential of digital technologies in various sectors. Here are some insights into the fund’s recent performance dynamics:
- Year-to-Date: The ETF has achieved a growth of approximately 2.37%, indicating a positive trend for the year.
- One-Year Change: Over the past year, the fund has seen an increase of about 26% in its value, showcasing strong performance in the digital sector.
- Long-Term Performance: Looking at the longer term, the ETF’s performance has provided an annualised return over 5 years of 5.49% which highlights the reason there is an appetite for the sector.
Holdings & Portfolio Insights
- The ETF offers a diversified approach to digitalisation, including companies that provide or utilise digital technologies significantly.
- Top Holdings: digital streaming company Spotify, Meta, Amazon and Netflix all make up 4 of the top 5 holdings out of 212 overall.
- Geographic Exposure: as we have seen in other funds listed here the overall exposure is heavily weighted toward U.S. (over 73%), with additional exposure in the Eurozone (6.76%) as well as Japan (5.50%) and Latin America (2.66%).
Investment Considerations
- Risk Metrics: The ETF’s focus on digitalisation makes it susceptible to the high volatility typical of the tech sector. However, the ongoing digital transformation across global industries could provide substantial growth opportunities.
- Growth Potential: This ETF could be a strategic addition for investors looking to gain exposure to the digitalisation trend, which is expected to be a long-term growth driver in the global economy.
VanEck Semiconductor UCITS ETF Performance Overview
The VanEck Semiconductor UCITS ETF offers investors exposure to the semiconductor industry, which is pivotal in today’s technology-driven economy. This ETF tracks the MVIS US Listed Semiconductor 25 Index, focusing on companies involved in semiconductor production and equipment.
- Year-to-Date: The ETF has navigated through various market conditions, reflecting the dynamic and sometimes volatile nature of the semiconductor industry but it has achieved a return of 17.89%.
- One-Year Change: Over the past year, the fund has seen an increase of 68.63% in its value, showcasing strong performance in the sector.
- Long-Term Performance: Given the funds inception in 2020, the ETF’s performance has provided an annualised average return over 3 years of 23.92%pa which highlights the reason there is an appetite for the sector.
Holdings & Portfolio Insights
- The ETF is composed of major players in the semiconductor industry, which are essential for a wide range of technological applications.
- Top Holdings: NVIDIA, Taiwan Semiconductor Manufacturing Company (TSM), Broadcom and ASML make up 40.69% of the overall fund, all of which are fundamental to advancements in technology and digital transformation.
- Geographic Exposure: It is heavily weighted toward U.S. companies (over 76%), with additional investments in the Eurozone (11.46%) as well as Asia Developed (10.55%).
Investment Considerations
- Risk and Volatility: Like many tech-focused investments, this ETF can experience high volatility, reflecting rapid changes in technology and global supply chain issues.
- Growth Potential: With continuous advancements in technology and increasing semiconductor integration into various industries including AI, automotive, and consumer electronics, the long-term growth outlook remains positive. However, investors should be mindful of cyclical fluctuations and potential geopolitical impacts on supply chains.
Investing in the VanEck Semiconductor Fund offers a way to capitalise on the growth of the semiconductor industry, which is crucial for various high-growth technology areas. It’s suitable for investors looking for exposure to a critical technology backbone with a long-term growth perspective.
For those looking to harness the potential of future innovations and trends these ETFs offer a strategic way to align investment portfolios with the transformative forces shaping our world. Whether it’s through the lens of automation, cyber security, clean energy, or digitalisation, these ETFs provide a vehicle to participate in the growth of sectors that may define the economic landscape of tomorrow. As always, investors should conduct their own research or consult with financial advisors to understand the risks and benefits fully.
Written by: Lewis Sell – Independent Financial Adviser for SJB Global
