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An Anatomy of Thematic Investing

Performance chasing with a narrative

Nicolas Rabener
10 min read
2 May 2022

SUMMARY

  • Thematic investing is combining a good story with positive performance
  • Unfortunately, themes often collapse when the story does not play out as expected
  • Or when valuations have become excessive due to investors’ enthusiasm

INTRODUCTION

The ETF database and news website ETF.com categorizes Cathie Wood’s ARK Innovation ETF (ARKK) as the largest thematic ETF in its database. Although ARKK is down approximately 60% over the last 12 months, compared to +1% for the Nasdaq 100, the ETF still manages almost $10 billion of assets.

However, ARKK does not really fit the definition of thematic investing, which is a bet on certain structural trends rather than individual companies or sectors. A thematic portfolio should consist of one or several themes that are created from as many stocks as possible, ideally equal-weighted, in order to avoid firm-specific risks.

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