Change is inevitable. It can also be profitable. By looking at developments that will change our lives and environment, investors can provide themselves with an opportunity to reap the rewards of enhancing asset diversification.

Within twenty years, forecasts suggest that China's Gross Domestic Product will exceed that of the United States. Thanks to advances in genomic medicine, the first humans will live to age 125. Internet connected smart phones will outnumber personal computers by over two to one. Cloud computing will change the way clients access data. Middle classes are emerging in several countries at varied rates.

Thematic portfolios are structured to take advantage of investment opportunities generated by investment themes. For instance, advances in genomic medicine will be enormously profitable to those who recognize its potential and indentify which companies are most likely to be the trend setters in this arena.

One approach to thematic investing has been to create broad indexes and place them in exchange traded funds or ETFs. An example would be an ETC investing in China. The problem with this approach is that the index is too broad and will contain as many losers as winners. It is more effective to apply screens to determine which firms will benefit the most from disruption of the status quo and build a thematic portfolio around these.

A concept called thematic exposure is important in determining how likely it is that a company will recognize and react effectively to changes like we have listed. What companies are positioned to take advantage of change and deliver outsize returns to their investors? Will concepts like cloud computing render software obsolescent? Who will produce the smart phones? 

 Some forward thinking investment managers have been carefully studying disruption and change and have created investment vehicles that enable investors to participate in the growth of these new market sectors. They look at the opportunity for profitable returns, the likely timing of the maturing of the market sector, the breadth of the theme in terms of sectors and regions.

For information on opportunities in thematic investing, please contact anadolna@associatesgroupinc.com