What Is Thematic Investing or Portfolio Themes?

When you think of investing, a basic mix of stocks and bonds probably comes to mind. After all, those are the portfolio building blocks that let you invest directly in companies, sectors, and industries. 

But have you ever wanted to invest in something bigger, like a new technology that could be the next big thing, or in a specific passion or interest? If so, you’re not alone. Many investors want their portfolios to reflect their personal preferences and their investment preferences. 

Thematic investing lets you do just that! And MoneyLion is excited to offer three new portfolio themes. Powered by industry leaders Global X and Wilshire, each portfolio theme lets you invest in a carefully selected set of ETFs aligned to a specific topic:

  • Future Innovation: ETFs focused on disruptive technologies like robotics, artificial intelligence, and autonomous cars.
  • Greater Good: ETFs aligned to companies that exhibit positive environmental, social and corporate governance (ESG) characteristics.
  • Earn & Grow: Dividend-paying equity ETFs that offer higher yield with some growth.

Now let’s talk more about the power of thematic investing and the variety of options and benefits. 

How Can I Invest in My Passions?

With thematic investing, you can invest in a big idea or theme that spans specific types of companies and industries. Some examples of thematic funds include clean energy funds, artificial intelligence funds, online gaming funds, and socially responsible funds, as well as funds focused on specific investing styles or characteristics such as income or growth.

Complementing our core risk-based portfolios, which are offered with our fully managed investment account, we now offer portfolio themes to help you take greater control of your investments and align them with your interests and goals. They are powered by Global X, one of the leading managers of thematic investments, as well as Wilshire, one of the largest investment consultants in the nation. 

How Does Thematic Investing Work?

In some cases, thematic investors seek to capitalize on anticipated changes in the world, such as advancements in technology or healthcare. In other cases, investors are looking to invest in causes they believe in, such as through funds that focus on environmental, social, and governance (ESG) criteria. While other thematic investors may focus more on their portfolio objective, such as generating additional income. 

Regardless of theme, the concept is generally the same. Thematic ETFs will track their related trends and provide exposure to investments  based on where they believe the key players (companies, consumers, underlying tools, and technologies) within the theme will move next.

The ability for investors to choose ETFs (essentially “baskets” of stocks or bonds) based on a higher-level theme can help them organize their portfolios, boost diversification, and/or target specific goals. For instance, investing in a thematic ETF focused on income-paying equities (stocks) might not only help an investor achieve their income goals better than investing in single stocks can, but it might also save them the effort required to identify these investments themselves. 

Fitting Thematic Investing into Your Portfolio

Thematic investing typically focuses on a more narrow or specialized selection of investments (in our case, ETFs) to capitalize on an investment preference, goal, or future growth trend. So while thematic ETFs can be beneficial to your overall portfolio, it’s always ideal to maintain diversification

Many investors choose to hold a core diversified portfolio of passive ETFs and then add thematic funds as additional holdings. This is often called a core-satellite approach. That’s a fancy name for a simple concept whereby you combine a core set of index ETFs — with benefits like lower costs, broader diversification, and lower volatility — with thematic ETFs that offer the potential for stronger performance. 

At MoneyLion, each member receives a personalized risk-based portfolio model that serves as their “core” allocation and gives them exposure to a broad, suitable mix of equity (stock) and bond investments. Members can add portfolio themes to their core portfolio model to further personalize their overall portfolio.

Benefits of Adding Thematic ETFs

The benefit of combining a core portfolio with a thematic portfolio is that investors can take advantage of simple, low-cost funds for the foundation of the portfolio and general diversification across markets, while layering on thematic funds that could fulfill a specific investing goal or preference, or could potentially help boost either the growth or income focus of their overall portfolio. 

Adding thematic ETFs also allows you to invest in a variety of themes based on the ideas that you believe in, without worrying about whether the individual themes are properly diversified overall. Plus, it’s exciting to invest in something you’re passionate about or interested in! 

Of course, there’s always the risk that “the next big thing” won’t pan out, so there’s heightened risk with thematic investing. That’s why it’s ideal to pair it with a diversified, risk-based portfolio.

MoneyLion’s Portfolio Themes

When you invest with MoneyLion, you’ll get a fully managed, diversified core portfolio as recommended based on your risk preferences, and then you can add portfolio themes as you choose. You can adjust how much you invest in your core portfolio model vs. your portfolio theme anytime. And we’ll manage it all for you in a single investment account, with no management or trading fees. 

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