8 minute read

We first introduced our Thematic Portfolios in late 2021, with the goal of giving clients exposure to multi-year, structural trends with strong, long-term growth potential. Those four themes are: Technology Enablers, The Future of Consumer Technology, Healthcare Innovation, and Environment and Cleantech.

Since our portfolios’ launch, the world has continued to evolve – and we’re refreshing our Thematic Portfolios to evolve with it. Here’s the approach we’ve taken and the changes we’ve made.

Our approach to thematic investing

Broadly speaking, thematic investing is about capitalising on longer-term trends and emerging sectors that have the potential to reshape industries and drive future growth.

Rather than investing in traditional broad market indices, thematic investing hones in on specific trends or innovations that have breakthrough potential – from AI to blockchain to biotechnology. As a result, this approach aims to outperform traditional indices over the long run.

With that in mind, here’s how we at StashAway construct our Thematic Portfolios:

1. Defining the building blocks: We start by defining the scope of each theme, and understanding the drivers behind the key sectors and sub-themes that belong to each of them. This helps us to determine the structural opportunities that exist within a theme, while also minimising correlations between sub-themes to provide the right diversification benefits.

2. Curating the best ETFs: Next, we canvass the investable universe of ETFs to determine which of these sub-themes we can actually incorporate into our portfolios. Using our systematic framework for selecting the securities on our platform, we assess each ETF’s liquidity, total cost, and track record, as well as drill down to its underlying index to ensure its methodology is robust. 

3. Optimising the asset allocation and managing risk: Finally, to build and manage our portfolios, we use our Economic Regime Asset Allocation (ERAA®) investment framework to optimise the resulting basket of curated ETFs, along with balancing assets such as ultra-short-duration Treasuries. This helps you to benefit from their thematic exposures while keeping risk under control.

Why we’re refreshing our Thematic Portfolios now

As we’ve shared above, thematic investing requires a long-term view; it takes time for these mega-trends to play out. That said, the world is constantly evolving – with new sub-trends emerging (generative AI, for example) and new thematic ETF launches to capture these opportunities. 

While we’ve been re-optimizing our Thematic Portfolios using our ERAA® framework to ensure that their risk levels are maintained through different macro regimes, these re-optimizations only shift the weights between their thematic and balancing assets.

Given the shifts in technology and the ETF industry, we’ve taken a concerted effort to “refresh” our portfolios to reflect the latest developments. So while re-optimizations occur whenever there is a shift in the ERAA® regime, you can expect a thematic refresh every 2-3 years.

In this refresh, here are the structural shifts that we have accounted for:

1. Rapid growth in technological trends. The meteoric advancements in AI is just one example of how key trends can materialise in just the span of a few years – and that’s why we’ve carved out a specific AI exposure in our Technology Enablers portfolio, for example.

2. The ETF universe has expanded. As with our other ERAA®-managed portfolios, we conduct periodic reviews of the universe of ETFs available globally. This allows us to consider ETFs that didn’t exist or whose track record was too short at the time of a portfolio’s launch. As a result, we’ve added new ETFs from the world’s top fund managers – including First Trust, Global X, Invesco, SPDR, and Xtrackers.

3. Some existing ETFs no longer meet our risk requirements. In line with our continued improvements to our portfolio construction and risk management techniques over the years, we also aim to maintain high standards for our ETF selection. We are removing actively-managed ETFs from our Thematic Portfolios to better manage risk, along with ETFs whose liquidity profiles have changed.

How we’ve refreshed our Thematic Portfolios 

Here are the changes we’re making to our Thematic Portfolios. For more information, you can find the full details in our app. 

Technology Enablers

Our Technology Enablers portfolio provides exposure to the disruptive technologies that you can’t see – those running behind the scenes that power and transform the world as we know it. 

• We’ve maintained our exposures to sectors such as robotics, semiconductors, software, and cloud computing as these sectors continue to underpin technological advancements. 
• We’ve carved out a new, separate exposure to companies involved in AI technologies via Xtrackers’s Artificial Intelligence & Big Data UCITS ETF, which uses a forward-looking methodology to capture the sub-theme’s high growth potential.  We’ve also added exposure to the cybersecurity sector via First Trust’s Nasdaq Cybersecurity ETF, as it stands to benefit from the risks that have come with rapid digitisation. 
• We’ve swapped our blockchain allocation from an actively-managed ETF (Amplify’s Transformational Data Sharing ETF) to an index-tracking ETF (Invesco’s CoinShares Global Blockchain UCITS ETF), which will allow us to better manage risk.

Future of Consumer Technology

Our Future of Consumer Technology portfolio also provides exposure to disruptive technologies – but with a focus on those that we, as consumers, can touch and use.

• We’ve maintained our exposure to video games and esports via VanEck’s Video Gaming and eSports ETF. The sector is expected to sustain solid growth as gaming technology advances, mobile gaming expands, and the popularity of esports and streaming platforms continues to rise globally.
• We’ve moved our internet and fintech exposures – First Trust’s Dow Jones Internet Index Fund and Global X’s FinTech ETF, respectively – to index-tracking ETFs for better risk management.
• To help capture developments in the autonomous and electric vehicle industry, we’ve swapped the ETF that provided exposure to the sector to Xtrackers’s Future Mobility UCITS ETF, which employs a forward-looking methodology.

Healthcare Innovation

Our Healthcare Innovation portfolio provides exposure to sub-sectors and companies that are pushing forward with technological breakthroughs and innovation in the healthcare industry.

• We’ve streamlined our allocations to maintain exposures to the pharmaceutical, medical devices, and biotechnology sectors, and introduced SPDR’s S&P Biotech ETF. 
• We’ve removed our exposure to the genomics and healthtech sub-themes given their high correlation with biotechnology, as well as less favourable liquidity profiles.

Environment and Cleantech

Our Environment and Cleantech portfolio provides exposure to technologies that contribute to the development of clean energy, sustainability and the environment.

• We’ve maintained our exposures to the water and smart grid industries given their solid long-term performance and continued demand for these sectors going forward.
• We’ve consolidated our clean energy exposure into a single ETF – iShares’s Global Clean Energy ETF.
• We’ve removed our allocations to wind energy and environmental services. Our allocations to green bonds were also removed, to keep the portfolio more equity focused.
• To capture the global shift towards electric vehicles, we’ve added exposure to the future mobility sector. Additionally, as companies and countries turn to nuclear energy as a way to meet surging power demand from AI, we’ve included Global X’s Uranium ETF. (Note: This ETF’s underlying index uses explicit safeguards to ensure that included companies do not engage in any application of uranium for unintended or controversial purposes.)

How thematic investing can fit into your overall financial plan

Thematic investing is a way to shape your portfolio around your beliefs about the future, but it’s important to think about how it fits into your broader financial plan without compromising on the essentials – like your retirement savings or an emergency fund. 

Before getting into thematic investing, consider how much risk you’re comfortable with and how long you plan to invest. Themes like AI, biotechnology, or clean energy can offer exciting growth opportunities – but they also come with higher volatility. As a result, investing in these themes often requires patience, and the ability to handle short-term ups and downs. 

That’s why our Thematic Portfolios are meant to work alongside – not replace – a diversified portfolio. This “core and satellite” approach allows you to invest in the themes you believe in, while maintaining the stability of a portfolio of core assets.