During the halcyon days of the recently deceased growth stock-fueled bull market, thematic investing received ample attention with much of it directed to exchange traded funds.
That makes sense, as ETFs can function as the ideal vehicles with which to access specific market niches, including emerging growth segments. Of course, thematic ETFs aren’t for all investors and, not surprisingly, this year’s weakness in growth equities is hindering the performance of such funds.
However, the case for thematic investing isn’t dead. Not by a long shot. Fortunately, there are more prudent avenues for investors looking to get into the game, and those include the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
“We believe allocations to thematic strategies can play a crucial role in addressing the world’s long-term challenges,” noted BNP Paribas research. “They often support growth by providing companies with access to capital. In addition, with a longer- term investment horizon, we see greater scope to focus on a smaller number of potentially exceptional companies with the opportunity to generate excellent growth and ultimately superior returns.”
While many investors are inclined to think about thematic investing through the lens of smaller companies — an accurate view in many cases — many of the member firms in QQQ and QQQM dot the lineups of an array of thematic ETFs as well.
Acknowledging that cloud computing, cybersecurity, fintech, and healthcare innovation, just to name a few, are considered emerging investment themes, QQQ and QQQM make sense for risk-averse investors that want thematic exposure because plenty of components in the Invesco ETFs address those themes and others.
“Cloud computing is experiencing a structural tailwind as it enables digitalisation and the storage of data,” added BNP Paribas. “Cybersecurity is a top spending priority for many companies and the trend is being reinforced by an increasingly strict regulatory environment.”
Adding to the allure of QQQ and QQQM as avenues to thematic investing are two points. First, both ETFs are homes to an array of quality companies. Second, many of those stocks are now on sale owing to the aforementioned weakness in growth stocks this year.
“Technology shares experienced a significant correction in 2022. Higher interest rates – raised by central banks to try to control elevated inflation – have affected many companies, as a high portion of their projected cash flow is typically expected far into the future. Risks such as delays to semiconductor supply have affected a wide range of companies, but particularly technology ones,” concluded BNP Paribas.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
