Capitalizing on Thematic Investing when you are Near Retirement

The potential for long-term structural changes that have been created and in some cases accelerated by the pandemic has many investors newly interested in an investment strategy that has been gaining prominence for decades: thematic investing. We have developed a method of incorporating dynamic thematic investing in a way that may makes sense for those nearing, or even in, retirement.

At its simplest, thematic investing involves taking a top-down, macro-economic view to identify trends or themes that are likely to play out over the next several decades. Unlike investing principles that use bottoms-up research to identify opportunities in various areas, thematic investing starts with a very broad thesis and then examines across countries, sectors, companies, and even asset classes how this opportunity will develop. 

Thematic investing might be associated with younger investors who have their whole lives to wait for a story to unfold. We take a different approach and want to bring the potential advantages of thematic investing to those who are near or in retirement. 

Understanding the Scope

From an investor point of view, it’s a very long-term strategy with multiple entry points as the theme matures and market conditions shift. Looking at recent history, the examples that come the quickest to mind are the internet and mobile phones. Mobile phones were developed initially as field communications in World War II, and then as usage in automobiles extended to elite consumers, became a signifier of 1960s and 1970s TV’s suave cool guys (Banacek anyone?), which fueled broad consumer desire. 

It wasn’t until the 1990s that mobile phones became a consumer staple and moved from a car accessory to a personal accessory. The internet had a somewhat shorter trajectory but followed similar milestones. The advent of the smartphone, which joined the two technologies, revolutionized the industry decades after the theme first arose. As this short history illustrates, both technologies had multiple strands across industries, geographies, sectors, consumer demographics, business cycles, etc. 

Current examples are the so-called “Fourth Industrial Revolution” encompassing artificial intelligence, robotics, and blockchain, among other things; sustainability concerned with clean energy and changing consumer preferences; and of course, global healthcare centered on the pandemic. 

Qualifying the Risks

The risk to new technologies is that they can get upended at any point and become obsolete. Revisiting the 1970s and 1980s, 8-tracks and Betamax come to mind. Because of the broadness of the theme, this is somewhat mitigated. However, due to the long-term nature of the strategy and the consistency of investing, a risk of overly concentrating investments does arise. There are some approaches to managing this, which can range from low-commitment to the strategy, such as investing only within the risk parameters of an existing portfolio to higher commitment strategies such as identifying only a single asset class to express the views. 

At DeWitt, we take a different approach. We’ve always built our investment strategies by marrying an innovative intellectual foundation with our holistic view across our clients' entire portfolios, for the length of their financial journey. 

Our clients want to maximize returns and are interested and open to new ideas – but only in a way that works with the limits conveyed by their existing wealth. For example, we have many clients that hold concentrated stock positions, or that own their businesses. Because their wealth is already concentrated, we focus our investments on lowering risk by generating non-correlated returns. 

This is how we employ thematic investing for our clients who are getting closer to retirement, or even in retirement. We are able to mix and match the constituents of existing thematic products to create an allocation to a theme that fits perfectly into a client's risk profile and goals. We want the long-term growth of thematic trends, but not necessarily the volatility. That is what we strive for. 

Proprietary, Rules-Based, and Constantly Evolving 

We’ve developed our own process around the premise that looking at past risk is a better indicator of the future than past return is. We’ve developed a proprietary process that removes emotion, bias, and subjectivity from investing. By analyzing data across multiple timeframes and markets, we are able to best identify non-correlated asset streams. This lowers risk over time – which of course, because the consistency of return is what matters – maximizes return. 

Because our process is agnostic to asset classes – anything with a price history can work in our models – we have the broadest range possible, making it a natural fit for a thematic investment thesis. 

Wrapping it Up 

Over the course of our history, we have been dedicated to bringing our clients knife-edge thinking. We start with the intellectual underpinnings, and when we get that right we apply it to investment portfolios that are singular to each client’s needs. No matter where you are on your investment journey, we can craft a strategy that works for you.