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Over the past couple of years, there has been a proliferation of retail investors looking for investments in specific areas based on macroeconomic trends. Known as thematic investing, these investors identify economic themes that they believe will benefit certain sectors, and thereafter invest in companies from these sectors. This is a contrast to what most investors (myself included) do, which is to take a broad-based market approach of investing in the entire market via an index-based ETF, such as the S&P 500.
For example, environmental, social and governance (ESG) investing has become more popular in recent years as investors start paying closer attention to not only the financial performance of companies they invest in, but also how these companies contribute to the environment and society at large.
Investors are also starting to be drawn towards companies with products and services that are built using disruptive technology. This is off the back of the success of the wildly popular ARK ETFs, which are designed to focus on disruptive innovation. The general belief is that innovation is the key driver of growth for most companies, and investors can capture higher than market long-term growth and capital appreciation if they focus on investing in these companies. The current pandemic has also led to more investors leaning towards companies that are innovating in healthcare and related services.
(Lack Of) Knowledge Is A Big Issue When It Comes To Thematic Investing
It’s easy for you and I to agree that ESG, disruptive technology and healthcare innovation are going to be investment themes that will perform well over the next few decades. However, a bigger challenge is figuring out and investing in the right companies that will capture these growth trends.
For example, with so many tech companies all claiming to be offering great products and enjoying high growth, we not only need to be a financial expert but also a technology expert in order to choose the right tech companies to invest in. The same applies to companies in the healthcare innovation space. In this sector, it’s not good enough to just analyse companies today based on their financial ratios. We also need to understand the investment thesis that we have for each companies (e.g. types of clinical trials and drugs they are focusing on), and whether or not they are likely to succeed and be able to launch commercially viable products. The current pandemic gives us a snapshot of how it’s like. Many companies are all gunning to come out with a vaccine, but only a few will ever come out with a product that can be widely used.
The Importance Of Diversification
When it comes to investing in these themes, the idea is not to invest in only one or two stocks from these sectors that we think will outperform everyone else. Rather, we should be investing in a portfolio of companies. This is to prevent a scenario where we are right in our investment thesis – for instance, companies that leverage on disruptive technology indeed perform very well over the next decade, but that the few companies that we have invested in did not.
Managing & Rebalancing Your Portfolio Regularly
Even if we have the time and knowledge to build our own thematic portfolio, we need to bear in mind that the companies we invest in within these portfolios typically belong to industries that are volatile, where changes happen all the time. Regular portfolio management and rebalancing is required to make sure that our portfolio isn’t skewed towards any specific stock. Likewise, companies that are underperforming over the long term may need to be removed from the portfolio altogether.
If you are intending to build your own thematic portfolio, you certainly can’t afford to have a buy-and-forget approach.
Thematic Investing Via Robo-Advisory Makes A Lot Of Sense For Many Investors
If like me, you hold a belief that there are certain investment themes that will perform well over the next one to two decades, but are unsure of how to get started with investing in them due to some of the abovementioned concerns, you will be glad to know that Syfe has introduced a collection of Syfe Select Themes portfolios.
Through the use of ETFs, these thematic portfolios are designed to specially provide us with exposure to the specific themes that we want to invest in. These portfolios are constructed by Syfe’s investment team.
As we may expect, each of these portfolios are specially designed for investors to gain exposure in their particular theme.
The Syfe Select Disruptive Technology portfolio is a ready-made portfolio comprising of ETFs that are similarly positioned to many disruptive innovation funds in the market. It invests in companies that are leveraging on cutting edge technologies and trends that are reshaping the future such as AI, robotics, cloud computing, fintech, esports, online retail, cybersecurity and more.
Based on how the portfolio is currently constructed, we can see that it comprises of 8 different ETFs, two of which are actively managed ETFs from ARK: ARK Fintech Innovation ETF (ARKF) and ARK Next Generation Internet ETF (ARKW)
Other notable ones include the VanEck Vectors Video Gaming & eSports ETF (ESPO), Global X Robotics & Artificial Intelligence ETF (BOTZ) and First Trust NASDAQ Cybersecurity ETF (CIBR).
These 8 ETFs are carefully selected so that they represent different branches of the broader disruptive technology theme. You can read more about the reasons why each of these ETFs is selected by Syfe here.
ESG & Clean Energy
When we choose to invest in the ESG & Clean Energy portfolio, we see a similar construct.
A total of 8 ETFs make up the portfolio. You get exposure to broad ESG funds as well as clean energy and water sustainability ETFs. For instance, the portfolio holds Global X Lithium & Battery Tech ETF (LIT), the largest electric vehicle ETF, and Invesco Water Resources ETF (PHO), the largest water ETF. You can read more about these ETFs here.
Syfe also provides other relevant information that we should also know about before we invest in each portfolio. These include the top holdings, country origins of the companies, historical returns and the overall risk rating of the portfolio.
The Syfe Select Healthcare Innovation portfolio invests across various sectors of the healthcare industry. This includes genomics and biotechnology, pharmaceuticals, healthcare services and medical devices.
It comprises 6 ETFs, including ARK Genomic Revolution ETF (ARKG), iShares US Medical Devices ETF (IHI) and broad-based SPDR Health Care Sector ETF (XLV). You can find out more about these ETFs here.
Similar to the Syfe REIT+ portfolio that we covered previously, the Syfe Select Themes portfolio is determined by Syfe. This means that everyone who is investing in each theme will get the same portfolio.
From a diversification standpoint, based on our observations of these 5 portfolios, the allocation for the top 5 companies for each of these portfolios is usually about 2% or lesser. This means that the portfolio is well diversified within the sectors. Also, there is also a risk rating that is associated with each of these portfolios that help investors to understand the risk level that they are taking for each of these portfolios. You can learn more about their portfolio construction methodology here.
As the digital wealth manager, Syfe’s responsibility is to curate the ETFs in the portfolio and the appropriate weightage for each ETF. Their investment team keeps watch on new emerging trends for possible inclusion in the thematic portfolios. As such, new ETFs may be added to your portfolio should they be identified as a good thematic fit. Additionally, your Syfe Select Themes portfolio will be rebalanced twice a year and your dividends automatically reinvested for you.
As investors, we choose the portfolio we want to invest in based on our views on the themes that will perform well.
Syfe Select Custom
For those who are already familiar with the various investment themes and would like to customise their own portfolio, they can invest via the Syfe Select Custom option. Through Syfe Select Custom, investors can build their own portfolios from a curated list of over 100 best-in-class ETFs. Syfe’s clients can choose to construct their own portfolio based on a selection of up to 8 ETFs.
Snapshot of the ETFs available on Syfe Select Custom
Alternatively, Syfe Select Custom also allows you to make adjustments from your Syfe Select Themes portfolio if you generally like the portfolio that has already been constructed for you, but prefer to make some adjustments. For example, many investors may already be investing on their own and Syfe Select Custom allows them to account for these investments.
Fees & Investment For Syfe Select Themes & Syfe Select Custom
For those of us who are existing investors of Syfe, we would already be familiar with the fees that Syfe charges. Syfe charges between 0.35% to 0.65% per year, depending on the size of our Syfe’s portfolio. This is the same fee that is payable across all Syfe’s portfolio, whether it’s our REIT+ portfolio, Syfe Core or Equity 100. The same fee applies to our Syfe Select Themes & Syfe Select Custom portfolios.
As always, getting started on any of Syfe’s portfolios (including the Syfe Select Theme & Syfe Select Custom) is exceptionally easy. There is no minimum investment amount nor a minimum commitment period. All you need to do to open an account and make a one-time deposit to fund your investment, or choose to make regular contributions of any amount you prefer, at a frequency of your preference. You can also withdraw your funds at any point in time .
For investors who are looking to invest in thematic portfolios, but have yet to get started, the Syfe Select Themes portfolio is likely one of the easiest ways to get started. While we can continue to hold a larger part of our investment in broad-based market index that form the foundation of our investment holdings, a smaller percentage of our portfolio can be tactically allocated to some of the Syfe Select Theme portfolios that is aligned with our outlook on what would do well in the future.
This article is sponsored by Syfe. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. This article is for information purposes only and does not constitute financial advice. Past performance of a product is not indicative of its future performance. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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