{"id":14750,"date":"2024-01-11T11:18:43","date_gmt":"2024-01-11T05:48:43","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=14750"},"modified":"2024-01-11T11:19:16","modified_gmt":"2024-01-11T05:49:16","slug":"everyones-investing-in-thematic-funds-should-you-too","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/everyones-investing-in-thematic-funds-should-you-too\/","title":{"rendered":"Everyone\u2019s Investing in Thematic Funds. Should You, Too?"},"content":{"rendered":"\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/what-are-thematic-funds\/\">Thematic funds<\/a> have been gaining immense popularity over the last few years. As per <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-amfi\/\">AMFI<\/a> data, in November 2023, sectoral and thematic funds made for 12% of the total AUM in <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> funds; compared to just 8% pre-pandemic.<\/p>\n\n\n\n<p>It\u2019s not just in India that thematic funds have been in vogue. According to data collated by Morningstar, the share of thematic funds globally has tripled as a percentage of all equity funds in the past decade.<\/p>\n\n\n\n<p>In fact, in Europe, thematic funds constitute more than 50% of the total equity assets under management. This makes India, despite the fact that AUM for thematic funds has grown 3.7x in the last 4 years (versus 2.6x for equity funds) look childlike.<\/p>\n\n\n\n<p>What\u2019s behind the popularity of thematic funds? More importantly, should you be hopping on to this bandwagon? And if yes, how?<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/everyones-investing-in-thematic-funds-should-you-too\/#Why-Are-Thematic-Funds-so-Popular\" title=\"Why Are Thematic Funds so Popular?\">Why Are Thematic Funds so Popular?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/everyones-investing-in-thematic-funds-should-you-too\/#Does-Thematic-Investing-Work\" title=\"Does Thematic Investing Work?\">Does Thematic Investing Work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/everyones-investing-in-thematic-funds-should-you-too\/#How-to-Invest-in-Thematic-Funds\" title=\"How to Invest in Thematic Funds?\">How to Invest in Thematic Funds?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why-Are-Thematic-Funds-so-Popular\"><\/span><strong>Why Are Thematic Funds so Popular?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li><strong>Stories Sell More than Numbers<\/strong><\/li><\/ol>\n\n\n\n<p>Let&#8217;s face it. Investing can be intimidating. And expert investors make things sound more complicated than they actually are. Contrary to that, thematic investing can be very easy to understand, offering the opportunity for investors to rationalise their decisions by themselves.<\/p>\n\n\n\n<p>From the current viewpoint, investing in clean energy is a no-brainer. So is investing in <a href=\"https:\/\/www.tickertape.in\/blog\/will-india-welcome-electric-vehicles\/\">electric vehicles<\/a>, <a href=\"https:\/\/www.tickertape.in\/blog\/how-ai-can-help-make-good-investment-decisions\/\">artificial intelligence<\/a>, urbanisation, nutrition, and so many other<\/p>\n\n\n\n<p>\u2018themes\u2019 that are rather intuitive to the public eye.<\/p>\n\n\n\n<p>The shift away from \u2018star fund managers\u2019 has already been seen across the world through ETFs, and thematic investing might only amplify that as decision making becomes more macro-driven and democratised.<\/p>\n\n\n\n<ol start=\"2\"><li><strong>More Supply to Meet More Demand<\/strong><\/li><\/ol>\n\n\n\n<p>With the approach succeeding globally, and picking up immensely in India, the mutual fund industry has more products to offer. As of November 2023, there are 145 sectoral and thematic schemes to choose from, compared to just 97 in November 2019.<\/p>\n\n\n\n<p>Additionally, the current Indian government has mastered the art of strategising and narrating. Thanks to fiscal policy, every Indian knows about the progress and potential in infrastructure, defence and manufacturing.<\/p>\n\n\n\n<p>Investing in these, at your own discretion, seems to be a step with fewer entry barriers than choosing from 40+ fund house, and 10+ categories of funds, throwing out thousands of permutations and combinations.<\/p>\n\n\n\n<ol start=\"3\"><li><strong>It\u2019s Easier When the Markets Are Up<\/strong><\/li><\/ol>\n\n\n\n<p>Sectoral and thematic funds are more concentrated than a broad-based <a href=\"https:\/\/www.tickertape.in\/blog\/stock-market-index\/\">index<\/a>. The relative lack of <a href=\"https:\/\/www.tickertape.in\/blog\/mitigating-portfolio-risk-through-diversification\/\">diversification<\/a> results in higher <a href=\"https:\/\/www.tickertape.in\/blog\/volatility\/\">volatility<\/a>, and inconsistency in returns, which are how investors define risk.<\/p>\n\n\n\n<p>However, psychologically, one tends to take on higher amounts of risk when the markets are doing well. Despite its biases, that trend has proven itself right; most often in the form of higher inflows when the markets are going up, and higher outflows during downturns.<\/p>\n\n\n\n<p>The same has been seen of sectoral and thematic funds too. Over the last year,<\/p>\n\n\n\n<p>whenever the inflow into equity funds was lower than average, only 8% of the inflow<\/p>\n\n\n\n<p>would go towards sectoral and thematic funds. However, when the <a href=\"https:\/\/www.tickertape.in\/blog\/6-factors-investing-in-equity-funds\/\">equity fund<\/a> inflow is greater than average, a whopping 20% gets channelled towards thematic investing.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Does-Thematic-Investing-Work\"><\/span><strong>Does Thematic Investing Work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>While India is relatively new to thematic investing, the concept has been popular since the 1950s. According to Morningstar, the first thematic fund started in 1948 by Chicago- based Television Shares Management.<\/p>\n\n\n\n<p>The Television Fund was made to benefit from the rise of the television industry at a point when there were only 1 million TV sets in the US. Given the long history of thematic funds in the rest of the world, there are some interesting insights to be drawn over time.<\/p>\n\n\n\n<ol><li><strong>Themes Are Subject to Change<\/strong><\/li><\/ol>\n\n\n\n<p>Themes, inherently are based on the idea of change. And the last thing to change is, is permanent. Themes often evolve, and so do funds.<\/p>\n\n\n\n<p>In fact, The Television Fund became the Television Electronics Fund shortly after its launch, broadening the scope of investment. And after two decades, when it was acquired by Kemper, it became the Kemper Technology Fund, which was further away from the original idea.<\/p>\n\n\n\n<ol start=\"2\"><li><strong>Thematic Investing has a Growth Bias<\/strong><\/li><\/ol>\n\n\n\n<p>The Morningstar research on thematic investing also highlighted how themes spring forth from growth narratives. 72% of thematic funds had a growth bias, while just 6% had a value tilt.<\/p>\n\n\n\n<p>In India, the most popular theme over the last year has been PSUs. Remember PM<\/p>\n\n\n\n<p>Narendra Modi\u2019s statement in parliament about investing in government run companies, and how PSUs did exceedingly well after? That!<\/p>\n\n\n\n<ol start=\"3\"><li><strong>Themes Are Slaves of Time<\/strong><\/li><\/ol>\n\n\n\n<p>Since the last 3 years, more than 50% of the funds in Morningstar\u2019s global universe have not just survived, but also outperformed the Morningstar Global Markets Index.<\/p>\n\n\n\n<p>However, the success rate dropped to just 1 in 10, over a 15-yr period. More than 75% of thematic funds that were available to investors at the onset of that period have since been closed, said the report.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How-to-Invest-in-Thematic-Funds\"><\/span><strong>How to Invest in Thematic Funds?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>While the frenzy is on and returns are healthy, it is easy to overlook on the perils of<\/p>\n\n\n\n<p>investing in thematic funds. But just following some basic steps can add prudence to the entire process and avoid some rookie mistakes.<\/p>\n\n\n\n<ol><li><strong>Differentiate Between Sectoral Funds and Thematic Funds<\/strong><\/li><\/ol>\n\n\n\n<p>There is a line of distinction between a sector and a theme. While automobiles is a sector, the shift from combustion engines to electrical engines is a theme.<\/p>\n\n\n\n<p>It\u2019s important to make this distinction since a sector can be cyclical, but a theme usually has a fair amount of structural support.<\/p>\n\n\n\n<p>Over the last 10 years, while the banking index has been the best performing sector just once in 2014, themes like the rise of private banking or <a href=\"https:\/\/www.tickertape.in\/blog\/digital-banking-and-fintech-payments-what-lies-ahead\/\">digital banking<\/a> or even NBFCs would have been more consistent in generating high returns.<\/p>\n\n\n\n<ol start=\"2\"><li><strong>Don\u2019t Forget to Diversify<\/strong><\/li><\/ol>\n\n\n\n<p>Thematic funds do <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in multiple companies, but at the end of it can\u2019t do away with market risk. They are at the end of the day, concentrated when it comes to the investment idea.<\/p>\n\n\n\n<p>European investors seem to have nailed this. A majority of Europe\u2019s thematic investments are channelled towards broad thematic investing. These are funds which invest in a range of themes as and when they see fit.<\/p>\n\n\n\n<p>At Rupeeting, we follow a similar approach. Take the Value Migration smallcase for example. It invests in themes with structural tailwinds emerging out of value-shifts. It has a mix of themes like energy efficiency through ethanol blending, luxury real estate, renewable energy, indigenisation of defence manufacturing, etc.<\/p>\n\n\n\n<ol start=\"3\"><li><strong>Do Your Research<\/strong><\/li><\/ol>\n\n\n\n<p>While thinking through themes, it is also important to learn from the evolution of thematic investing from developed countries.<\/p>\n\n\n\n<p>A few checks to ensure can include the reputation of the AMC, fund managers\u2019 experience, the AMCs history in thematic investing, changes in AUM, diversification within the fund, changes in the fund\u2019s objectives, constituents and adherence to the theme. Tickertape can be particularly useful in doing your own research.<\/p>\n\n\n\n<p>Additionally, ensure you\u2019re investing when the theme is fairly nascent, and exiting while it\u2019s fairly mature.<\/p>\n\n\n\n<p>Thematic investing\u2019s nascency in India can be taken advantage of, but the developed world\u2019s maturity is something to learn from!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Explore the rising trend of investing in thematic funds! Tripling globally in a decade and constituting 12% of India&#8217;s equity AUM in 2023, they&#8217;re reshaping investment strategies worldwide.<\/p>\n","protected":false},"author":133,"featured_media":14755,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1770],"tags":[],"acf":[],"modified_by":"Harshit Singh","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2024\/01\/Sagar-Lele-Thematic-Funds.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/14750"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/133"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=14750"}],"version-history":[{"count":1,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/14750\/revisions"}],"predecessor-version":[{"id":14751,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/14750\/revisions\/14751"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/14755"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=14750"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=14750"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=14750"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}