We have entered an era of renewable energy, alternative proteins, electric vehicles, artificial intelligence, virtual reality, machine learning, robotics, cryptocurrency and hyperconnectivity.

With radical innovation becoming a norm, the disruption already unfolding all around us is likely to shape not only our own lives but the lives of future generations for decades to come.

It will also require levels of investment potentially unparalleled in history. It has been estimated, for example, that the journey to net zero will need capital spending of $275 trillion by 2050^[1].

All this suggests the age of megatrends is in full flow. This is why a key task for investors today is to understand the dynamics that are capable of shaping tomorrow and beyond.

Thematic investing offers a powerful means of framing these transformative forces. It can also serve as a platform for seizing some of the greatest growth opportunities ever witnessed.

A central aim of a thematic approach is to capture long-term growth potential regardless of short-term market movements. It is about seeing and taking advantage of the bigger picture.

Many traditional investment approaches aim to anticipate where markets might be in months, weeks or days. Some even aim to anticipate where markets might be in a matter of minutes. Thematic investing instead aims to focus on future winners that will deliver value over the long term. The objective is to anticipate where markets might be in years or even decades. This is because themes such as digitisation, sustainable infrastructure and climate action are likely to persist well into this century – and possibly the next. This is the ultimate long-term play.

Advantage of thematic investments in comparison with traditional investments:

Reduced exposure to cyclical factors, a strong focus on risk/return ratios over time and diversification away from “stagnation themes” should all be key features of thematic investing. As well as bringing long-term advantages, such measures can have shorter-term benefits. For example, dedicated thematic approaches may be especially useful in an inflationary environment. In particular, thematic investments in real assets can help position portfolios more efficiently by providing greater liquidity in comparison to direct infrastructure or real estate investments for instance, reducing idiosyncratic risk and enhancing diversification.