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First Trust puts spotlight on thematic investing

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“Thematic investing can provide a better tool for investors to express their investment beliefs and get a more precise investment,” says Gregg Guerin (pictured), First Trust senior product specialist. He believes that it is a powerful tool and could play an important role in most investors’ portfolios.
 

“The last 10 years have been a testing time to outperform the S&P 500. If you take all the US mutual funds and UCITS together, the S&P 500 Index would be in the top 10 percentile.  However, over those same last 10 years, the Dow Jones Internet Composite Index has outperformed the S&P 500 by over 11 per cent on an annualised basis to the end of 2018, leading to over a 500 per cent cumulative outperformance.”
 
This, he explains, is on the back of one of the most prominent but yet obvious themes that exist today: the internet.

 
“The internet is essentially the infrastructure of innovation, and because of the internet, cloud computing is taking off which necessitates that we get real about security via cybersecurity or blockchain technology. All other themes like robotics, AI or biotechnology for example will sit on top of or benefit from an internet or cloud computing-based system that is secure,” he says.
 
“Thematic investing can break sector and regional boundaries, and without thematic products many investors would be left with too little exposure to their true investment aims.”
 
“For example, if you invest in the S&P 500 to get exposure to the FANG stocks, what about the other 496 stocks? Further, with the new GICS reclassification, Facebook, Alphabet and Netflix have moved to the communications services sector, leaving many investors who invest in the ‘tech sector’ with potentially zero exposure to Facebook, Amazon, Netflix and Google (Alphabet).”
 
However, for a thematic investor who buys an internet ETF, it is possible that they will receive a larger allocation to that underlying theme and potentially benefit from the FANG exposure at the same time. 
 
“While thematic investing is just as possible through mutual funds, it is a lot more prevalent in ETFs, hence the big proliferation in the ETF universe,” Guerin says. Some people using modern portfolio theory world are starting to bridge out, but I feel thematic investing should be on every adviser’s screens. It is surely a more precise way to express an investment.”
 
In the last year, First Trust Global Portfolios has launched a number of thematic-based ETFs: the Blockchain First Trust Indxx Innovative Transaction and Process UCITS ETF (BLOK); the First Trust Cloud Computing UCITS ETF (FSKY) & the Dow Jones Internet UCITS ETF (FDN).
 
 
 
 

 

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