Too many investors becoming ‘theme junkies’

Investors are becoming ‘theme junkies’ thanks to the rise of thematic investments, according to Montaka Global Investments.

There had been a rise in global thematic funds investing in areas such as technology, commodities and climate change, particularly in the exchange traded fund (ETF) space.

According to VanEck, flows into thematic ETFs were expected to reach $10 billion by the end of 2021.

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However, Montaka chief investment officer, Andrew Macken, said investors should be aware that themes were long-term trends and not viable for short-term gains. They should also be careful not to fill their portfolios with multiple themes.

“It’s easy to forget that durable long-term themes are exactly that: long-term; they evolve slowly but surely,” he said.

“Demographics and the aging populations of many of the world’s largest economies is a classic example of a long-term structural theme that continues to play out as most long-term themes do.

“Today, however, it almost feels like investors are looking for a new decade-long theme… every two weeks. Investors have become theme junkies.

“Most of these new themes are not real themes. Investors are being sold short-term cycles as long-term themes. Some are not even short-term cycles, but merely the ebbs and flows that result from the natural moodiness of ‘Mr. Market’ himself.”

He suggested investors should stick to reliable themes such as e-commerce and healthcare which were persistent, attractive and had the power to lift the earnings power of attractive businesses.

“When an investor builds their portfolio on a bedrock of strong investment themes, most of the daily machinations of the market simply become noise,” he said.

“Interesting noise, for sure – but noise, nonetheless. You can look past the daily noise with renewed confidence when you realise clearly that people are competing for your attention by spruiking fake ‘themes’.”




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