What is thematic investing and how can it maximize your returns

Over the years, many innovations in investment and their strategies have floated around in the market. Each new strategy builds the way to successful investment by maximizing the returns. In any investment strategy, one thing to keep in mind is your smart work and understanding of market than the application of investment strategy itself. There are different approaches which aim at maximizing the total return indices. One such approach is Thematic Investing. When you are using this approach in investment, what you are doing is ideally is taking advantage of the future trends. Being a top-down approach, it helps the investors to gain exposure to the macroeconomic themes and trends through managed funds or baskets of related stocks. This type of investment can replicate some Equity Index or any Custom Index. Usually, it can be seen to replicate some form of Exchange Traded Funds. It recognizes that the world is changing rapidly and incorporates a deep understanding of the underlying drivers of long-term value creation and risk.

So the next question is, how can thematic investing maximize the portfolio’s returns?

Low Correlation

This approach to investing offers low correlation to the returns of traditional growth strategies and a negative correlation with the relative returns on traditional value strategies which can lead to diversification of portfolio for the investor. Diversification of portfolio can help the investor to maximize returns with minimum risk.

Alpha at scale

The alpha measures the performance of your fund against a specific benchmark index. Benchmarks usually capture the past successes. While thematic investing seeks to capture the future growth which helps the investors to earn market premium.

Hedge against Rapid Change

Since this investment approach focuses constantly on the secular changes and disruptive innovation, this method of investing can offer a portfolio hedge in a rapidly changing world and can complement the traditional index-based strategies.

One last thing to remember is although thematic investing comes with the potential of high returns, the risks are not to be ignored. Before using the approach, do our homework and constantly update your understanding of market. Market and economy can change rapidly with the structural changes and this can affect your returns. So, place your bets carefully and invest smartly!

Source : http://thematicinvestings.blogspot.in/2017/01/what-is-thematic-investing-and-how-can.html