Thematic Investing During A Transformative Year
Luis Berruga is the CEO of Global X ETFs.
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There is no doubt that the global economy is changing fast, and in 2023, the pace of this change has been accelerating further. From scientific breakthroughs in healthcare to investments in a greener economy to major developments in experiential technologies, it’s clear that the economy of tomorrow will look very different than the one of today.
At Global X, we recently released Charting Disruption, our annual thematic outlook on the bold ideas shaping our future. Understanding these powerful changes across sectors will be critical for investors and asset managers alike in considering whether to take a thematic investment approach to their portfolios.
What Is Thematic Investing?
At its core, thematic investing involves providing a forward-looking approach that seeks to embrace the trends happening in the world. It is the process of identifying powerful macro-level trends, then considering which underlying investments would benefit from them coming to fruition.
Trends To Watch
Personalized Medicine
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The healthcare sector in particular looks set to reap the benefits of major disruptive change. The Covid-19 pandemic helped to accelerate various shifts that were already underway toward a more personalized approach to medicine.
For example, scientists are making great strides in genomic sequencing, and the cost per genome sequence has fallen from nearly $100 million in 2002 to under $1,000 in 2021. Lower sequencing costs mean scientists will have a much easier time understanding diseases and detecting them earlier. This is especially critical when it comes to detecting cancerous cells, as developments in liquid biopsies—blood tests that scan for tumors—have the potential to disrupt the cancer treatment industry and save countless lives.
Exciting developments in genomic technology are also benefitting therapeutics with a renewed focus on disease management and prevention. Based on our analysis, we expect that worldwide sales relating to prevention will increase significantly in the coming decade across categories—particularly in endocrinology, immunology, central nervous systems and oncology.
Green Energy Storage
Looking beyond healthcare, accelerating public and private investments in green technologies is going to be key in the global fight against climate change. At the heart of these investments is growth in global energy storage, which will enable the shift away from fossil fuels. Global energy storage is forecast to increase by more than 20 times the capacity in 2020 to reach 1,028 gigawatt-hours by the end of this decade. This encourages economic support for renewables such as solar power and helping energy grids to withstand extreme weather events.
Electric vehicles and their critical materials, such as lithium, are another key piece in solving the green technology puzzle and look set to have a promising 2023.
Global EV sales were up more than 10% year over year in the first month of this year. For the full year, our analysts expect global EV sales to reach approximately 15 million units and to grow at a 14% CAGR through 2035, supported by accommodative policies such as subsidies for EV purchases in Germany, France, the U.S. and China. This will have major consequences for the electric mobility landscape upstream, particularly the extraction of raw lithium, which goes into EV batteries.
Big Data And Social E-Commerce
Lastly, investors ought to consider how experiential technologies are enabling online behaviors. One example of this is in the field of big data, as large-scale data centers are essential to ensuring that the digital economy flourishes. The global data expansion is already well underway, with an average connected person forecast to be recording over 4,900 data interactions per day by 2025.
The growth of worldwide data generation has correlated almost perfectly (99.7%) with the total revenue for public SaaS companies, according to our analysis.
Growing in tandem with big data is social commerce, or e-commerce facilitated through social media. According to one estimate, roughly half of U.S. adults made at least one social commerce purchase in 2021, and we forecast it will grow at a 31% CAGR through the remainder of the decade. In other words, not only will internet users be increasingly sharing their data online, but they will also be making increasingly large purchases informed by their habits online.
Leaning Into Disruption
For you who are interested in leaning into these disruptive trends, thematic investing may be particularly useful in helping to position your portfolio for the future.
Thematic investing is based on key structural changes—such as the falling costs of genome sequencing or the rising popularity of electric vehicles—which are observable and quantifiable. When considering the investment potential of particular themes, make sure you have high conviction on the themes’ structural changes and medium-to-long-term outlook.
It is important to choose themes with longer-term potential as that prioritizes structural shifts over cyclical ones, making your precise time of entry or exit into a theme somewhat less important. Unlike cyclical themes, which ebb and flow over shorter intervals, structural themes represent the emergence of something new. In other words, they are emergent forces that will shape the global economy in the future.
When conducted properly, thematic investing can be a key asset for investors looking to navigate a year already full of disruptive economic change in areas ranging from healthcare to the environment to new technologies.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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