Skip to content
From artificial intelligence to green energy to the space economy, thematic investing makes it easier to invest in ideas and trends.
In 1848, James Marshall discovered flakes of gold in a streambed near the water-powered sawmill he was building in Coloma, California.
As news of the discovery spread, roughly 250,000 prospectors flocked to the state in search of their own fortunes. While many gold-seekers went bankrupt, purveyors of essential goods and services—including denim, saloons, and shovels—saw their wealth explode.
In retrospect, the California gold rush illustrates the principles behind thematic investing, which identifies companies across various industries that form part of a concept or trend. With this approach, you can invest not only in the headliners of the next big thing but also in a diverse cast of supporting players that could continue to thrive even after the trend itself has faded.
Thematic 2.0
Thematic investing has existed in public markets since at least 1948, with the launch of the Television Fund, which sought to profit from all things TV just as color sets were about to debut. However, not all themes are as obvious as TV—and even then, investors had to rely on a fund company to prepackage and present the opportunity.
Today, it's a different story. Advances in technologies like natural language processing make it possible to mine corporate communications—such as earnings reports, regulatory filings, and other public information—in search of common keywords supporting a theme, often revealing an unexpected web of interconnected companies.
"The concept of thematic investing isn't new, but new technologies have made it easier to uncover a universe of potential opportunities," says Inga Rachwald, a senior portfolio strategist for Schwab Asset Management.
Finding your fit
While there's no shortage of ideas out there—nearly 600 thematic funds debuted in 2021 alone, with managed assets topping more than $800 billion globally1—deciding among the possibilities is highly personal. "Today's thematic investing allows you to pursue your interests beyond traditional boundaries like market sectors or the obvious industry leaders," Inga says.
For example, consumers of electric and hybrid vehicles might see an opportunity to invest in automakers, but also mining companies that source the rare earth metals required for next-generation car batteries. In a similar vein, those who anticipate the expansion of health care access might invest not only in medical-service providers but also technology companies transforming the delivery of care.
Whatever theme you decide to pursue, you want to be confident it has legs. "Unlike fads that can flame out in a matter of weeks or months, thematic investing involves big ideas that could take years to play out, assuming they don't peter out altogether," says Matt Wilson, director of digital wealth offers and planning at Schwab.
For example, technological advances in genomics research have made it possible to diagnose, treat, and even predict genetic disorders more precisely. At the same time, the field is rife with ethical questions and other potential pitfalls that could limit its progress. "As with any investment, your thematic holdings should align with your risk tolerance and time horizon," Matt says.
Getting invested
Once you have a theme in mind, you generally have two ways to access it:
1. Individual stocks
If you want control over the companies you hold—and your allocations to each—you may wish to invest in a theme via individual stocks. That said, it can be challenging to distinguish and vet relevant companies on your own, to say nothing of regularly reviewing their business models to ensure they continue to be a good fit. "Even experienced, savvy investors may find it difficult to identify a range of appropriate companies for a given theme," Inga says.
This is where offerings such as Schwab Investing Themes™, which uses proprietary research to identify viable trends and vet relevant companies, can help. You choose the theme that appeals to you and invest in a ready-made list of relevant stocks—or customize the list to suit your particular passions or objectives. "Rather than starting from scratch, investors using this latest iteration of thematic investing can easily and efficiently find suitable options," Matt says.
Be aware, however, that the stocks included in a theme are not recommendations and may not perform as intended. What's more, natural language processing and related technologies can suffer from the same biases inherent in any human endeavor. As with any investment, you should do your own due diligence to ensure any stocks you trade align with your expectations and your overall investment strategy.
Thematic investing at Schwab
A robust research and vetting process can help you zero in on emerging opportunities and ideas that fit your interests.
Schwab Investing Themes™ is a comprehensive thematic investing solution that enables investors to easily research, customize, and invest in more than 40 thematic areas based on their personal interests and passions.
The team behind Schwab Investing Themes uses a unique research process to uncover emerging innovations and trends and assess their potential. From there:
- Researchers use technologies like natural language processing to mine terabytes of data to discover companies worth considering for a given theme.
- A proprietary algorithm ingests thousands of pages of text to quantify companies' relevance to each theme.
- A rigorous screening process weeds out stocks or share classes with low market capitalizations and trading volumes, both of which can increase volatility and investment risk.
The resulting themes include up to 25 stocks and their suggested weights, based on their relevance scores and market caps. With as little as $250, you can either invest in the full theme at the suggested weights or customize the stocks and weights according to your needs and preferences—all commission-free through the Schwab Investing Themes online trading platform. And because themes are reviewed periodically, the lists and weightings are regularly updated to keep up with changing market conditions.
Once invested, you can track and trade the theme or the individual stocks within it—all of which you own—and easily monitor your themes. Themes with underlying baskets of stocks are not guaranteed to beat the market, so it's important to measure their performance against your personal investment objectives, risk tolerance, and financial situation.
A robust research and vetting process can help you zero in on emerging opportunities and ideas that fit your interests.
Schwab Investing Themes™ is a comprehensive thematic investing solution that enables investors to easily research, customize, and invest in more than 40 thematic areas based on their personal interests and passions.
The team behind Schwab Investing Themes uses a unique research process to uncover emerging innovations and trends and assess their potential. From there:
- Researchers use technologies like natural language processing to mine terabytes of data to discover companies worth considering for a given theme.
- A proprietary algorithm ingests thousands of pages of text to quantify companies' relevance to each theme.
- A rigorous screening process weeds out stocks or share classes with low market capitalizations and trading volumes, both of which can increase volatility and investment risk.
The resulting themes include up to 25 stocks and their suggested weights, based on their relevance scores and market caps. With as little as $250, you can either invest in the full theme at the suggested weights or customize the stocks and weights according to your needs and preferences—all commission-free through the Schwab Investing Themes online trading platform. And because themes are reviewed periodically, the lists and weightings are regularly updated to keep up with changing market conditions.
Once invested, you can track and trade the theme or the individual stocks within it—all of which you own—and easily monitor your themes. Themes with underlying baskets of stocks are not guaranteed to beat the market, so it's important to measure their performance against your personal investment objectives, risk tolerance, and financial situation.
A robust research and vetting process can help you zero in on emerging opportunities and ideas that fit your interests.
Schwab Investing Themes™ is a comprehensive thematic investing solution that enables investors to easily research, customize, and invest in more than 40 thematic areas based on their personal interests and passions.
The team behind Schwab Investing Themes uses a unique research process to uncover emerging innovations and trends and assess their potential. From there:
- Researchers use technologies like natural language processing to mine terabytes of data to discover companies worth considering for a given theme.
- A proprietary algorithm ingests thousands of pages of text to quantify companies' relevance to each theme.
- A rigorous screening process weeds out stocks or share classes with low market capitalizations and trading volumes, both of which can increase volatility and investment risk.
The resulting themes include up to 25 stocks and their suggested weights, based on their relevance scores and market caps. With as little as $250, you can either invest in the full theme at the suggested weights or customize the stocks and weights according to your needs and preferences—all commission-free through the Schwab Investing Themes online trading platform. And because themes are reviewed periodically, the lists and weightings are regularly updated to keep up with changing market conditions.
Once invested, you can track and trade the theme or the individual stocks within it—all of which you own—and easily monitor your themes. Themes with underlying baskets of stocks are not guaranteed to beat the market, so it's important to measure their performance against your personal investment objectives, risk tolerance, and financial situation.
2. Thematic funds
For investors who don't want to manage a portfolio of individual stocks, a thematic mutual fund or exchange-traded fund (ETF) could be a good solution. Keep in mind that these funds generally offer broad, rather than targeted, exposure to a specific theme. Additionally, they typically aren't required to invest all their assets in companies relevant to their theme. A fund's management fees should also be considered, as they can compromise your overall returns.
To research funds that may be related to a specific theme, use Schwab's Fund Screener or ETF Screener, select Fund Name under Basic and search for relevant keywords.
Assessing performance
How you define success for your thematic investments should be based on your personal goals for those holdings. For example:
- If you're looking for a specific return, be sure to have a return target and time frame in mind. If your holdings don't meet those expectations, you'll need to figure out why. Were your expectations too high? Did the theme fail to materialize? From there, you can assess whether you need to modify your holdings or rethink your thematic strategy.
- If you're investing based on personal interests, you'll need to regularly monitor your holdings to ensure they're still living up to your standards and adjust accordingly.
If you invest via thematic funds, you also should keep an eye out for style drift, in which a fund manager invests in holdings that don't quite fit the stated strategy, perhaps in search of better returns. Even if the fund is performing as (or better than) expected, style drift can be cause to reassess whether a fund still matches your thematic goals.
Think long and diversify
Many of today's most compelling themes are the outgrowth of a changing world—and change can take time to fully materialize. As a result, it's best to approach thematic investing with a long-term mindset and an understanding that some themes may never live up to their potential. It's not about chasing what's trendy; it's about participating in an idea you believe in.
Whatever theme you pursue, consider how the holdings will fit into your overall asset allocation. "Given that thematic holdings could span countries, sectors, and even market capitalizations, it's prudent to consider them as part of your total global equity allocation," Matt says.
Learn more or get started with Schwab Investing Themes.
1Morningstar Global Thematic Funds Landscape 2022, Morningstar Manager Research, 03/2022.
Discover more from Onward
Keep reading the latest issue online or view the print edition.
Keep reading the latest issue online or view the print edition.
Keep reading the latest issue online or view the print edition.
" id="body_disclosure--media_disclosure--240086" >Keep reading the latest issue online or view the print edition.
We can help you build a diverse portfolio.
Closing Market Update
Stocks rallied again and yields hit new 52-week lows on growing hopes for a 50-basis-point Fed rate cut. Info tech has led the rally, but a new S&P 500 all-time high seems elusive.
Opening Market Update
Stocks gained overnight after a media report said the Fed might consider a 50-basis point cut. Chips, which keyed the rally, sputtered early and Boeing fell on strike news.
What to Know About After-Hours Trading
What is after-hours trading? How does it work? Learn about the rules, risks, and benefits of extended-hours trading.
Related topics
Investors should consider carefully information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.
Investing involves risk, including loss of principal.
Investment Research for Schwab Investing Themes™ is provided by Charles Schwab Investment Management, Inc. ("CSIM"). CSIM is an affiliate of Charles Schwab & Co., Inc. ("Schwab"). Both CSIM and Schwab are separate entities and subsidiaries of The Charles Schwab Corporation.
Schwab Investing Themes is for informational purposes only; it is not intended to be investment advice (including fiduciary advice as defined under the Employee Retirement Income Security Act or the Internal Revenue Code) or a recommendation of any stock.
Schwab Investing Themes is for informational purposes only; it is not intended to be investment advice (including fiduciary advice as defined under the Employee Retirement Income Security Act or the Internal Revenue Code) or a recommendation of any stock or investment strategy.
Orders placed online through Schwab Investing Themes will have $0 commission. However, the standard online $0 commission does not apply to restricted stock transactions. Exchange process, American Depositary Receipt (ADR), and foreign transaction fees still apply. See the Charles Schwab Pricing Guide for Individual Investors for full fee and commission schedules.
Thematic investing involves risk including loss of principal. The strategies are generally non-diversified and concentrated in the securities of issuers in a particular market, industry, group of industries, sector, country or asset class. As a result, a single adverse economic or regulatory occurrence may have a more significant effect on the strategies investments, be more vulnerable to adverse economic, market, political or regulatory occurrences, and may experience increased volatility than other strategies with greater diversification.
Please read the Schwab Investing Themes™ Terms and Conditions.
If you customize a theme, it will no longer reflect our theme research. Each investing strategy brings with it its own set of unique risks and benefits.
Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Schwab Asset Management® is the dba name for Charles Schwab Investment Management, Inc. Schwab Asset Management and Charles Schwab & Co., Inc., Member SIPC are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation.
International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.
0624-SV2G