Thematic investing identifies themes changing the world and seeks companies positioned to benefit.
Key takeaways:
Mega forces drive long-term investment opportunities – Mega forces, like demographic changes, AI, energy transition, and others are big, structural changes that affect investing now - and potentially in the future.
In our view, modest interest rate shifts could support rate sensitive assets – The potential for additional cuts in 2025 could support non-cash-flowing assets like bitcoin, gold, and even biotech stocks.
Artificial Intelligence (AI) remains a transformative force – Continued investments in AI infrastructure suggest the potential for long-term growth, despite short-term volatility.
Role of thematic investments in portfolios – Thematic ETFs seek to offer exposure to unique return opportunities not captured in traditional sector-based or country-based investments and may expand a portfolio manager’s toolkit for potentially delivering long-term alpha.
Thematic Investing and Mega Forces
At any given time, powerful trends are shaping markets, consumer behaviour, businesses, and government agendas. These long-term structural trends, often referred to mega forces, focus on investing in companies positioned to benefit from major shifts in society, technology, and the economy.
Some of these broad, transformative forces reshaping industries and economies can be categorized accordingly:
Demographic divergence: Split between aging advanced economies and younger emerging markets with different implications.
Digital disruption and AI: Technologies transforming how we live and work.
A fragmenting world: Globalization is being rewired as the world splits into competing blocs.
Future of finance: Fast-evolving financial architecture.
Transition to a low-carbon economy: The transition is set to spur a massive capital reallocation as energy systems are rewired.
Three Key Investment Themes for 2025
Looking ahead, we think these three major themes could define market opportunities.
Modestly Lower Interest Rate Environment
With expectations of potential rate cuts in the U.S. and Canada by the end of 2025, we believe that certain asset classes may benefit. Non-yielding assets like gold and Bitcoin often perform well when the opportunity cost of holding them declines.1 Additionally, rate-sensitive areas of the market such as biotech stocks could see positive momentum as borrowing costs decrease. Such innovation couldn’t come at a more critical time; ageing populations, particularly in developed markets, are bolstering demand for many drugs and treatments in categories that disproportionately impact seniors. 2
Physical Economy Growth: Infrastructure & Housing
The U.S. is seeing increased investment in infrastructure, manufacturing, and home construction due to factors like policies aimed at reshoring and a housing supply shortfall. Reshoring — or the act of bringing manufacturing back to domestic soil — gained prominence during the pandemic when global trade was severely impacted by supply chain bottlenecks. By increasing domestic production and shortening supply chains, governments and companies can exert more control and reduce risk over previously complex and fragile systems. With 5–8 million homes needed to meet demand, we believe that sectors related to homebuilding and infrastructure could offer strong investment opportunities. 3
AI Expansion: Building the Digital Future
AI continues to evolve, with significant investments being funneled into data centres, energy infrastructure, and computing power. The AI industry is still in a ‘build phase’, requiring robust infrastructure to support growing computational demands. By 2030, an estimated US $700 billion per year may be spent on AI-related infrastructure, highlighting significant investment potential. 4
Why these themes matter
How these mega forces influence different sectors. For example:
The aging population is driving demand for healthcare innovations like biotech and pharmaceuticals. 5
Geopolitical fragmentation is altering supply chains, potentially making resilience a priority over cost efficiency.
We believe that Thematic exposures can offer a significant opportunity to enhance performance potential in a risk-managed way. Thoughtfully integrating thematic exposures allows investors to seek unique and diversified sources of risk and potential return tied to structural growth trends. We believe thematic investing holds enduring value in helping investors seek to achieve their financial goals.
As the world evolves, so should investment strategies. By understanding thematic investing and how it focuses on macro-level trends, investors can position their portfolios to seek to capitalize on long-term structural changes shaping the future.