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00:00 (upbeat music)
00:02 - Hello, viewers and investors.
00:07 Welcome to another episode
00:08 of Outlook Money's Investment Made Easy webinar series.
00:13 This episode is spearheaded by Mira Asset Mutual Fund.
00:18 Today's topic of discussion is tech investing,
00:23 what it is and how should investors approach it.
00:27 Thematic investment focuses on long-term trends
00:30 rather than specific companies or sectors
00:33 which may help in better returns.
00:36 The timing is very important
00:38 when investing in funds or stocks.
00:41 That's because the performance of any sector or team
00:44 keeps changing as per the emerging economic scenario.
00:49 I'm Sudeep Sanyal, Assistant Editor, Outlook Money,
00:54 your host for this session.
00:56 And I am delighted to welcome Mr. Umesh Kumar Dalia,
01:01 Head ETF Sales Mira Asset Investment Managers,
01:04 Private Limited, who will throw some light
01:06 on the strategy one should adopt
01:08 for investing in thematic funds.
01:10 Dalia has over 17 years of experience
01:14 in sales and distribution, channel management,
01:17 business acquisition for mutual fund industry
01:20 in both retail and banking sector.
01:22 Welcome, Mr. Dalia.
01:25 Let me begin with a question straight away.
01:28 What is thematic investing and why is it growing globally?
01:32 - Hi, Sudeep.
01:33 Thank you so much for having me on the show.
01:35 So yeah, I think thematic investing,
01:38 when we talk about it,
01:40 actually focuses on long-term structural trends
01:43 and ideas to capitalize on them,
01:45 basically rather than focusing on a specific sector
01:49 or companies, it enables investors to get returns
01:53 through potential opportunities created by economical,
01:57 social, or technological changes.
02:00 A theme-based investment approach, if you talk about it,
02:03 always allows investors to personalize their portfolios,
02:07 to include investment that are aligned with their interests
02:11 and obviously with their expectations,
02:14 and that are geared towards selected trends.
02:18 Now, if you talk about the characteristics
02:20 of thematic investing, since it's a very, very,
02:23 I won't say new thing,
02:24 but it's now emerging globally among investors' portfolio.
02:29 The basic characteristics of thematic investing
02:31 includes structural trends.
02:33 It includes sector independence, okay?
02:36 And then also it includes security selection
02:39 where it identifies companies with exposure
02:43 to different target segments, different target themes,
02:46 and also it captures the change.
02:50 The companies which are trending right now,
02:53 it captures those trends that reflects
02:56 how the world is changing.
02:58 So in other way, if I say,
03:01 it is like investing for your future
03:03 by investing in the future.
03:05 That's how we can summarize the theme
03:08 or thematic investing here.
03:11 Now, if we talk about global numbers,
03:14 so as per ETFGI, it says that globally,
03:17 there are close to 1,271 thematic ETFs already there,
03:21 which is like put together,
03:23 the AUM is around $419 billion.
03:27 From around, so there are around 252,
03:30 252 providers or basically manufacturers
03:34 who has launched such products,
03:36 which are listed on 51 exchanges,
03:38 and that those funds are covering close to 41 countries.
03:42 So this data is as on April, 2022,
03:45 as published by ETFGI.
03:47 So if you look at overall last five years,
03:51 so over the last five years,
03:52 thematic ETFs have witnessed a 3.5X growth
03:56 in their assets and their popularity among investors,
03:59 and that is expected to increase further
04:01 in the coming years.
04:03 - If you can elaborate as to how thematic investing
04:06 is different from market caps and sector funds?
04:09 - Yeah, I think that's a very basic question
04:12 and very important also.
04:14 So the major factor that differentiates thematic funds
04:18 from market cap or a sector fund
04:20 in their investment strategy,
04:23 sorry, a thematic fund intends to capitalize a trend
04:27 and would invest around a broader theme, right?
04:32 That cut across different sectors, right?
04:35 They are actually less concentrated
04:38 as compared to sector fund,
04:40 but there are little more concentrated
04:44 as compared to when we compare these funds
04:46 with market cap based funds.
04:48 So just to give an example, to explain it more,
04:51 like in thematic funds, like an electric vehicle fund,
04:54 if you take that example,
04:56 that invest into entire ecosystem,
05:00 entire companies involved from their supply,
05:03 entire supply chain of EV production,
05:06 including automakers, auto component suppliers,
05:09 raw material suppliers, battery providers,
05:12 mining companies, and et cetera.
05:14 So basically, when we talk about electric vehicle
05:17 as a theme, it covers the entire ecosystem
05:20 starting from mining till company produce the vehicle
05:23 and it goes out into the market.
05:25 Now, if you compare it with, on other hand,
05:27 with a sector fund, like say,
05:29 similarly, let's talk about example
05:31 of an auto based index fund
05:33 that basically invest into companies
05:37 like automobile OEMs,
05:41 and obviously the auto insularities.
05:42 So from a comparison perspective,
05:45 the themes come cater more bigger,
05:48 or you can say, universe than normal sector fund.
05:52 So that's, I would say, basic difference
05:55 between sector, market cap, or thematic fund.
05:59 - That was a brilliant example in which you gave.
06:01 I mean, it made things so much easier for our viewers also,
06:05 I mean, because otherwise technical terms,
06:08 always there's always a bit of a problem.
06:10 But now that you have said this,
06:12 so what are the various themes which are becoming popular?
06:16 And what is the kind of uptick
06:19 which you have seen in this funds globally?
06:22 - Yeah, I mean, thematic investing has been gaining traction
06:26 and popularity across the globe, if you look at,
06:29 which is this sort of popularity and traction
06:32 is basically leading to more innovation
06:35 and emergence of many new thematic strategies
06:38 in recent years.
06:39 It has various categories and approaches to be,
06:43 if you talk about,
06:44 which differs in terms of investor expectations
06:47 and the ideology that determine
06:49 the underlying investments also.
06:52 So if we compare, like if we talk about thematic funds
06:56 as a universal, and what is the universe?
06:59 So thematic funds that are universally available
07:03 to investors via various approaches,
07:05 I use few examples like disruptive trends,
07:09 which includes like artificial intelligence,
07:13 like cloud computing, electric vehicle, et cetera.
07:16 The second example could be mega trends.
07:19 So mega trends, which includes like your healthcare
07:22 innovation, environmental sustainability, et cetera.
07:25 And the third theme is like ESG.
07:27 ESG is now slowly and gradually has started
07:30 getting popularity in India also,
07:32 which includes or which focuses on companies
07:34 which are having strong corporate governance
07:38 with ESG practices.
07:39 And also there is an outcome oriented themes also,
07:43 which is like funds such as consumption
07:46 or manufacturing based fund,
07:48 which comes under this category.
07:51 So again, I'll just like to put here,
07:54 as per ETFGI globally,
07:56 there are around 475 new thematic ETFs
07:59 were launched worldwide in 2021,
08:03 which is up from around 139 in 2020.
08:07 So in 2020, there were 139 new fund got launched,
08:11 which in 2021 number is up to 475.
08:15 As of that, this data I'm talking about
08:18 is as on April, 2022.
08:20 So thematic ETFs have witnessed more than a $69 billion
08:23 of inflows in the past 12 months,
08:26 while all the reasons have witnessed net inflows.
08:29 And especially if we talk about US or Europe
08:33 that has been leading this particular trend.
08:36 So it's slowly and gradually picking up across the globe,
08:40 I must say.
08:41 - About the Indian investors.
08:42 So if we are talking about them,
08:44 as you said, it's globally picking up.
08:46 So what are the kind of themes
08:49 that Indian investors could explore for their investments?
08:54 If you could throw light on that.
08:56 - Yeah, I mean, when we talk about India,
08:58 in India, the thematic landscape being limited,
09:03 basically to old economy themes like infrastructure,
09:06 housing, or consumption-based funds.
09:09 Investors can consider now,
09:12 including those themes which are already available in India,
09:15 which I talked about, apart from them,
09:17 investors can consider investing
09:19 into next big emerging themes and mega trends also.
09:22 Like, as I said, ESG is something
09:24 which is gaining traction.
09:26 Artificial intelligence is again a very good theme.
09:30 Electric vehicle is again a very good theme
09:32 and a popular theme where investors are now more keen
09:36 about clean energy, cloud computing, et cetera.
09:39 These are the themes which are actually gaining
09:41 more traction into the world.
09:43 And slowly and gradually, I can foresee that India can also,
09:47 Indian investors can also look at those sort of themes,
09:50 which are basically expected to transform the way
09:53 we live and work.
09:54 So international thematic funds can be one
09:57 of the suitable investment avenue
09:59 to take advantage of the opportunity
10:01 where this global diversification can give investors
10:05 exposure to such global mega trends, okay?
10:08 Which are at this point of time, if you talk about,
10:11 not yet available in the Indian stock market right now.
10:16 So that can be a good opportunity for Indian investors.
10:19 Now, as with any investment, we always talk about risk.
10:23 So for our viewers, if you could tell the risk
10:26 that would be associated with thematic investments.
10:30 And also, I mean, what type of investors,
10:34 I mean, is thematic investing appropriate for?
10:39 - So when I talk about thematic fund,
10:42 be it actively managed fund or a passive fund,
10:45 they have their own inherent risk, I must say,
10:48 because the return risk characteristics of each product
10:52 differs significantly from one or another.
10:55 There may be broad-based themes like ESG
10:58 that might give you stable returns
11:00 with lesser volatility,
11:02 whereas themes like robotics or AI,
11:04 which are basically expected to scale in the future,
11:08 might be able to generate higher returns,
11:09 but would have higher risk proposition
11:13 attached to them also.
11:14 Thematic funds have been concentrated,
11:18 they have higher concentration risk
11:19 than market cap-based funds,
11:22 lesser correlation with broader markets.
11:25 The performance of these funds may diverge
11:28 and can be cyclical at times.
11:31 Thematic products can be considered ideal for investors
11:34 looking for long-term strategic allocation
11:36 for two structurally strong themes.
11:39 Investors should choose a portfolio
11:41 that is aligned into their risk profile
11:43 and investment objective.
11:45 So that's what I would say investor can look at these themes.
11:50 - So now that we have talked about portfolio,
11:52 so how should an investor create a portfolio
11:56 using thematic funds?
11:57 I mean, what should be the allocation?
12:00 - So based on investment objective
12:03 and conviction about a particular theme,
12:06 because every investor has their own conviction
12:09 or understanding, or maybe not investor,
12:11 maybe their advisor also.
12:13 So investor can take a short-term tactical call also
12:16 on these thematic funds,
12:18 or maybe they should make a long-term
12:22 strategic allocation also where they can patiently
12:25 write out a growth story, growth cycle
12:28 of future-based themes.
12:30 Since these investments have higher concentrated risk
12:33 compared to broad-based fund as I highlighted earlier also,
12:36 investors can consider around 10% of allocation
12:41 to these thematic funds.
12:43 To start with, if an investor follows
12:46 the core and satellite approach,
12:48 then I must say that thematic fund
12:50 can be part of your satellite portfolio.
12:54 The core portfolio should include broad-based indices,
12:58 such as S&P 500, Top 50, if we talk about globally,
13:01 or in India, say Nifty 50.
13:03 These kind of index or ETFs can give you more core portion
13:08 for your portfolio.
13:10 So satellite portfolio can include thematic products
13:13 like electric vehicle, artificial intelligence,
13:17 cloud computing, et cetera.
13:19 So investors should keep a balance
13:21 where a certain percentage of his overall portfolio
13:25 can be looked for thematic,
13:27 and rest can be invested into core portion
13:31 from a portfolio perspective.
13:33 - With this, we come to the end of today's episode
13:36 of Investments Made Easy on Thematic Investing.
13:40 Thank you, Mr. Dalia, for joining us today.
13:43 Viewers, we hope you enjoyed your conversation today.
13:47 Please don't forget to comment some feedback
13:50 on this episode.
13:52 You can also share your suggestions and questions
13:54 at letters@outlookmoney.com.
13:57 We'll be back with our next edition soon.
13:59 Till then, stay invested and keep following Outlook Money.
14:04 - Mutual fund investments are subject to market risks,
14:06 Read all scheme related documents carefully.