By Thomas Kostigen
A theme is a specific and distinctive quality, characteristic, or concern. We often associate themes with books or movies—stories.
Increasingly, however, life themes are being adopted into financial planning and investing. And it’s easy to see why: lives are stories. To create the life you want to live, deciding on a theme that captures your hopes, wants, dreams, and desires, is a critical determinant of your future.
The coronavirus pandemic is causing many people to revisit their life goals. Faced with the prospect of mortality and pressing the pause button on how we typically live on a day-to-day basis has made a lot of people realize that a) life is short, and b) maybe it’s time for a change.
A big trend among financial advisors at the moment is succession planning: advisors are selling or merging their practices with an eye on retirement or starting a new professional course in life. Investors, meanwhile, are looking to include a little more purpose in their portfolios. The result of reflection by both investors and advisors is manifesting in the capital markets, with thematic investments gaining interest.
Fidelity Investments recently highlighted the popularity of thematic investments and pointed out some good do’s and don’ts when considering investing by your personal beliefs as opposed to investing by the numbers.
“Now you can find funds to help you invest based on where you believe the world is headed—or where you want it to go. There are funds based on disruptive trends like cloud computing and autonomous vehicles, as well as value-based strategies like those focused on women-run companies and environmental sustainability, and outcome-focused investments like those aimed at reducing portfolio volatility or protecting against inflation. The key is finding quality funds that align with your values and beliefs, which also fit into your investment plan,” Fidelity advises. It lists four key takeaways:
- Thematic investing strategies consider long-term trends, ideas, beliefs, and values when choosing stocks, bonds, mutual funds, ETFs, and other investments.
- Among the most popular types of thematic strategies are those focused on disruption, mega-trends, ESG (environmental, social, and governance), differentiated insights, and outcomes.
- Thematic mutual funds or ETFs may provide opportunities to invest in themes plus the benefits of professional investment research and management.
- Make sure to look under the hood to understand how a thematic fund works and how it could fit into your overall investment plan.
One category of investment that is seeing big gains is ESG. “ESG funds storm to top of first-half performance tables,” headlines Callaway Climate Insights, a new, weekly newsletter covering the business of climate change. “The better a company’s management, the higher their ESG score should be. Effective management usually translates to stock performance, too,” CCI writes, adding that five of the 10 top performers are up more than 40% year-to-date.
It should be noted that smaller ESG funds have been the best performers, and largely because they have big holdings in tech companies that have been somewhat resilient to the economic fallout from the pandemic.
Another way to look at top performers is to see them as nimbler. Flexibility is fostering new ways of looking at life and new ways of delivering prosperity. Still, no matter to which value you gravitate, holding a steady course and sticking to your theme produces the best results. Just like in storytelling, it’s best to be clear. A financial professional can often help exact your through line.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.