The problem with thematic investing

Thematic investing comes with significant drawbacks, and returns are often underwhelming, says Rupert Hargreaves

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Thematic investing has been around for decades, but the market really exploded during the pandemic. Investors sought out ways to place focused bets on stocks that would benefit most from the trillions of dollars flowing into big ideas, and asset managers responded by launching hundreds of new funds in sectors such as artificial intelligence and green energy.

Between the beginning of 2020 and the end of 2021, total assets under management (AUM) in thematic active funds rose from around $290 billion to a peak of almost $900 billion, according to data from Morningstar – i.e., they tripled in two years. However, that turned out to be a short-lived high for many thematic-investing trends.

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Rupert Hargreaves
Contributor and former deputy digital editor of MoneyWeek

Rupert is the former deputy digital editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.

Rupert has written for many UK and international publications including the Motley Fool, Gurufocus and ValueWalk, aimed at a range of readers; from the first timers to experienced high-net-worth individuals. Rupert has also founded and managed several businesses, including the New York-based hedge fund newsletter, Hidden Value Stocks. He has written over 20 ebooks and appeared as an expert commentator on the BBC World Service.