Investment Themes are All Around Us
One of the things that I like to think I have always been pretty good at is identify themes that have the potential to become good investments. A couple of weeks ago, I wrote about investing in what you know. Basically, look at the products that you use and interact with every day and see if they are from a publicly traded company whose stock you could think about buying.
I like to invest in individual companies but there are risks to this which I understand some people may not want to take. But finding a theme, and then seeing if there is a way to invest in it broadly may help to mitigate some of that risk. And thanks to the creativity of the people who create exchange traded funds (ETFs), there is no shortage of ways to gain exposure to just about any theme you can think of, no matter how niche it might seem. The benefit of investing in an ETF rather than an individual company is a level of diversification. When you invest in one stock, you are making a bet that they will be the ultimate winner in their category…what if you are wrong? While it may not seem like it now, there was a time when Google was not the dominant search engine…now it’s a verb. Anyone remember Ask Jeeves? What about Bing? It’s part of Microsoft and is still around but I would be hard pressed to remember the last time I thought about it before today. But, there was a time when one of the “other” search engines could have been what Google is today. Maybe you were an early user of one of these and thought that it would have made a great investment.
Thematic ETFs allow us to make a bet on a trend that we think could be BIG without risk the risk of picking the wrong horse. The best part is that we can see many of these themes if we just pay attention to how we live our lives and what is happening around us. What are some of the big ones that have the potential to become bigger?
Online Retail. This one may seem obvious by now, made more so by the COVID pandemic. But it may also be just getting started. According to Amplify, the company behind the Online Retail ETF (IBUY), online retail makes up just 16% of US retail sales. From 1999 to mid 2020, total growth has of online retail sales has been 4,600%. Is 16% the max? Probably not. Investors seem to agree.
Also, remember, you can’t get online without the internet, but I should not have to mention that. Here is the First Trust Dow Jones Internet ETF (FDN) trading near all-time highs.
Electric Vehicles: This is another one that may become more and more obvious over time. I know that I notice a lot more Teslas on the road with each passing day, week, month, etc… But it’s not just Tesla in the space, Ford, GM and the luxury brands are all working on an electric car of some sort. While Tesla is the clear winner for now, will they always be in the driver’s seat? (see what I did there?). If you think this is a trend that will continue to grow, why not look for ways to take advantage of it? And why not look for a way to not have to pick the ultimate winner but rather focus on technology that enables the theme…batteries. What do they need to make the batteries? Lithium. According to Global X, who bring us the Lithium ETF (LIT), says that lithium is an essential material used in lithium-ion batteries, which play an increasingly important role in areas like electric vehicles and renewable energy storage.
Gaming: I have two daughters who love to play the game Roblox, which will be going public soon. Their step-brother is a big fan of sports games. Many adults that I know are gamers. I am sure many who read this can say the same. This is all taking place right in your home, most likely. The team at ETFMG, which gives is the Video Game Tech ETF (GAMR), notes that the video game industry is enjoyed by over 1 billion loyal users and influences many other tech industries such as virtual reality software and cloud-based services and is a $127B global industry estimated to grow 49% by 2025.
Pets: This one hits home for me because Lola rules the roost in our house and when I wrote my Thanksgiving note last week, it was pointed out to me that left Lola out. I am going to rectify that here and now. But seriously, pets are part of the family and while we are working from home, we are getting more and more attached to them. ProShares gives us the Pet Care ETF (PAWZ) and tells us seven out of 10 U.S. households today have pets, more than have children, and owners are providing pets with premium foods, luxury services, state-of-the-art health care, insurance policies and more. The pet care industry could reach $270 billion in global sales by 2025. It has grown steadily every year since 2001, even during the Great Recession. Here’s more. And here is an uptrend.
I could go on and on. Wondering if you can invest in the theme of treating and testing viruses? GERM. Do you think robots will take over the world, some people do? ROBO. Are you striving to be a social media influencer and spending all your time on TicTok? SOCL. Do you have solar panels on your roof? TAN. Interested in clean technology generally? ICLN. What about wind? FAN. Do you think, as I do, that cash is dirty and prefer to pay with your phone when you are not shopping online? IPAY.
You get the point. But the bigger point is there is no special insight needed to spot trends other than paying attention. Themes come and go but the bigger ones have some staying power and there may just be a way to invest in them without trying to determine which single company will become the Google of their space.
*Nothing here is or should be considered investment advice or a suggestion that they are suitable investments for anyone in particular.