When creating a diversified investment portfolio, ETF investors should consider how thematics can help differentiate a balanced portfolio and leverage disruptors that are upending traditional equity paradigms.
On the recent webcast (available On Demand for CE Credit), How Thematic Equity Can Energize a Portfolio, Jon Maier, SVP and Chief Investment Officer at Global X Funds, explained that given the goings-on in a market of tariffs, appreciating U.S. dollar and strong corporate earnings, many are taking a more inward or U.S. bias approach, which also reflects Global X’s U.S. oriented approach within the Core Series portfolios.
In developing a diversified investment portfolio, Maier outlined the traditional and tactical asset allocation methodologies, but he also added that security selection and exposure to structurally disruptive thematic trends may potentially augment returns over the long haul.
“Over the past 10 years the markets have been more correlated across assets classes, we are looking to position a portfolio so as to take advantage of markets under certain conditions,” Maier said.
Maier argued that themes are relevant to the current environment. A thematic approach includes nvestments that stand to benefit from structural change driven by demographic and technological changes.
For example, the consumer discretionary firms have traditionally targeted the spending preferences of baby boomers and Gen Xers, appealing to suburban lifestyles and material wants. However, Millennials are set to see their incomes rise and inherit trillions from the baby boomer generation. Their unique spending preferences, such as living in cities and favoring experiences, are expected to radically alter what types of products are sold and how they are bought.
A Look at Disruptive Industries
Other industry disruptors include advances in lithium battery technologies where falling costs and rising production of Lithium-ion batteries are leading the shift to renewable energy and electric vehicles.
FinTech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen and enhance customer experiences.