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Sept. 3, 2022, 8:48 a.m. EDT

Thematic investing takes playing the long game to the next level

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By Syd Stone

Investing is a waiting game — especially when betting on thematic funds rather than indexes. And that patience can pay off.

Being able to predict future technologies and trends is extremely advantageous for investors. If you make the right bets, and the future you foresee actually materializes, then you could stand to win big.

This concept is also known as thematic investing — aka, the process of looking forward to where we think the world is going, and guessing which companies stand to benefit from that future.

“We might look at breakthrough technologies. We look at climate change and resource scarcity. We look at urbanization. We look at all these really powerful trends happening around the world that we believe are going to emerge over the next five, 10, or even multiple decades, and try to anticipate which types of companies and which areas of the economy are going to really thrive,” Jay Jacobs, the U.S. head of thematics and active equity ETFs at BlackRock, said on this week’s Best New Ideas in Money podcast.

ETFs — or pooled collections of investments like stocks, bonds or commodities, which first appeared in the 1990s — have become common because they enable investors to easily buy and sell a holistic piece of something as broad as the S&P 500.

Thematic ETFs, on the other hand, track a theme — not an index — which allows investors to hold a curated set of securities that express a belief about the potential of a given theme. So for example, BlackRock /zigman2/quotes/207946232/composite BLK +0.34% has an iShares Self Driving EV, Charles Schwab /zigman2/quotes/201281754/composite SCHW -0.80% has a Crypto Thematic ETF — and you may have heard of Cathie Wood’s Ark Innovation ETF.

The market for thematic ETFs is really split into three different groups, Jacobs said on the podcast: end investors, wealth managers and institutions such as pension funds or insurance companies. And Bryan Armour, director of passive strategies research at Morningstar, North America, said they often launch during bull markets. There were bursts of thematic ETF launches in 2007 before the global financial crisis, for example, and again in the late 2010s and in 2021, he explained.

Learn more in this week’s podcast. And tune in every week to MarketWatch’s Best New Ideas in Money podcast with Stephanie Kelton, economist and a professor of economics and public policy at Stony Brook University, and MarketWatch reporter Charles Passy. Each week, they explore innovations in economics, finance, technology and policy that rethink the way we live, work, spend, save and invest.

You can listen to past episodes here.

/zigman2/quotes/207946232/composite
US : U.S.: NYSE
$ 710.29
+2.41 +0.34%
Volume: 840,597
Dec. 6, 2022 4:00p
P/E Ratio
19.57
Dividend Yield
2.75%
Market Cap
$107.05 billion
Rev. per Employee
$988,424
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/zigman2/quotes/201281754/composite
US : U.S.: NYSE
$ 80.59
-0.65 -0.80%
Volume: 4.99M
Dec. 6, 2022 4:00p
P/E Ratio
24.44
Dividend Yield
1.09%
Market Cap
$151.65 billion
Rev. per Employee
$623,772
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