Investing in Change: Thematic Investing 101
The world is undergoing structural economic changes at a rapid pace.
Technological breakthroughs and scientific discoveries that used to take decades are happening in years, and shifting demographics and climate change are causing upheaval around the globe. With the onset of Industry 4.0 and constantly shifting capabilities and consumer priorities, the global investment landscape is transforming as well.
How do you prepare for this transformation? This graphic from MSCI highlights thematic investing, its characteristics and benefits, and how themes are constructed and utilized.
Thematic Investing: Characteristics and Benefits
The key to thematic investing is a thorough understanding of megatrends.
Megatrends are long-term structural trends that can have a transformative effect on global economies, in areas of high disruption and innovation and with significant growth potential. These can include transformative technologies like driverless vehicles and 5G-enabled robotics, or societal changes like an aging society.
As megatrends solidify, they also become increasingly important drivers of earnings and equity returns. Investors traditionally have partial exposure to these themes as part of a portfolio’s growth allocation, but thematic investing allows for specific themes to be targeted in a more focused way.
Characteristics of Thematic Investing
- Secular Trends: Focuses on long term political, economic, technological, and social trends.
- A Changing World: Captures trends that reflect how the world is changing.
- Sector Independent: Cuts across countries and traditional sectors.
- Security Selection: Identifies companies with exposure to different target themes.
All together, these characteristics allow thematic investing to complement traditional portfolio design by enabling investors to take active control of themes impacting their portfolios.
Benefits of Thematic Investing
- Gives investors exposure to long-term structural trends.
- Positions portfolios relative to long-term risks and stranded business models.
- Provides exposure to several themes that can be quantified, analyzed, and managed.
Thematic Investing In Action
Over the past decade, thematic investing has gained traction across financial circles.
In 2015, the global thematic fund market was estimated at $155 billion assets under management (AUM). By 2020, the market had grown to $426 billion AUM, with thematic ETFs growing at an impressive 20% CAGR over the five-year time span.
As the leading provider of global investment indexes, MSCI constructs thematic indexes that directly capture megatrends using a comprehensive rules-based methodology. They include indexes focused on the digital economy, efficient energy, genomic innovation, and the food revolution.
Here’s how MSCI creates a thematic index:
- Build a clear expression of the theme to capture the key trends.
- Identify aligned business activities incorporating expert insights.
- Map products, services, and concepts linked to the theme in a consistent, rules-based approach using Natural Language Processing (NLP).
- Establish economic linkage between companies and theme, measured by relevance scores.
- Select and re-weight stocks using relevance scores.
Breaking Down a Theme
Through a broad understanding of megatrends and their sub-themes, the use of NLP allows MSCI to comb through company descriptions and business line items to ensure (and measure) total thematic coverage.
For example, the Future Mobility theme is broken down into sub-themes of batteries, smart mobility, sharing economy, high speed transport, and vehicle automation.
From there, each sub-theme is further broken into key concepts that highlight key players in the market, such as batteries being broken down into battery packing, charging infrastructure, recycling, and technologies.
There’s a flux of emerging technological, macroeconomic, and geopolitical megatrends that have already started to unfold. Thematic investing is all about defining tomorrow’s investable trends and impacting your portfolio today.
Antimony: A Mineral with a Critical Role in the Green Future
Despite its lack of fanfare, antimony is a critical mineral that plays an important role in the mass storage of renewable energy.
Antimony: A Mineral with a Critical Role in the Green Future
If someone asked you to name the first mineral that came to mind, odds are, it wouldn’t be antimony.
Yet, despite its lack of fanfare, it plays a significant role in our day-to-day lives. This graphic from Perpetua Resources provides an overview of antimony’s key uses, and the critical role it plays in the movement towards clean energy, among other uses.
What even is Antimony?
Antimony is an element found in the earth’s crust. Rarely found in its native metallic form, it is primarily extracted from the sulfide mineral stibnite.
It has a variety of uses and is found in everything from household items to military-grade equipment. Because it conducts heat poorly, it’s used as a flame retardant in industrial uniforms, equipment, and even children’s clothing.
|End Use||% of antimony consumption in the U.S.|
|Transportation and batteries||29%|
|Ceramics and glass||12%|
Its second most common use, according to USGS, is in transportation and batteries. Traditionally, antimony has been combined with lead to create a strong, corrosion-resistant metal alloy, which is particularly useful in lead-acid batteries.
However, recent innovation has found a new use for antimony—it now plays an essential role in large-scale renewable energy storage, which is critical to the clean energy movement.
Antimony’s Role in Clean Energy
Large-scale renewable energy storage has been a massive hurdle for the clean energy transition because it’s hard to consistently generate renewable power. For instance, wind and solar farms might have a surplus of energy on windy or sunny days, but can fall short when the weather isn’t sunny, or when the wind stops.
Because of this, mass storage of renewable energy is key, in order to transition from fossil fuels to clean energy. Recent research points to liquid metal batteries as a potential storage solution—and these batteries heavily rely on antimony.
But there’s a finite supply, and with China currently dominating antimony production and processing, the U.S. could be at the mercy of its economic rival.
|Country||Production in 2020 (tons)||Reserves (tons)|
In 2020, there was no domestically mined production of antimony in America—meaning the U.S. relied on other countries, primarily China, for its antimony supply.
In the past, China has imposed restrictions on the exports of antimony-based products to the U.S., which reduced availability and increased prices. Because of this, antimony was identified as one of the 35 minerals that are critical to U.S. national security.
Tapping into Domestic Supply
To decrease foreign dependence, the U.S. could tap into domestic resources of antimony and build up its local supply chain.
The only major antimony deposit in North America is located in the Stibnite-Yellow Pine Mining District of central Idaho. This site is the largest reserve in the nation and is expected to supply roughly 35% of U.S. antimony demand on average for the first six years of production.
Domestic production would not only allow the U.S. to reduce its import reliance, but it would also create jobs, providing economic support for the local community.
In the near future, antimony demand could soar as a result of its critical role in clean energy storage—and domestic production via the Stibnite-Yellow Pine Mining district could play a key role in meeting this rising demand.
The History of Psychedelics (Part 2 of 2)
This graphic showcases the recent history of psychedelics and explores the exciting possibilities of this promising market.
The History of Psychedelics (Part 2 of 2)
In part one of this two-part series, we unearthed the story behind the prohibition of psychedelic substances, and how strict regulations resulted in a hugely stigmatized industry.
Over the last decade however, new breakthroughs proving the untapped therapeutic potential of medicinal psychedelics are coming to the fore, leading many to believe that restricting them may have in fact been premature.
The graphic above from Tryp Therapeutics is the last in a two part series that explores how psychedelics have evolved over the last 6,000 years.
The Psychedelic Renaissance
After decades of being labeled as illegal narcotics, the industry reinvented itself as a viable solution for treating hard-to-treat illnesses in a safe and controlled way.
“Psychedelics, used responsibly and with proper caution, would be for psychiatry what the microscope is for biology and medicine or the telescope is for astronomy.”
This unprecedented comeback has sparked a global medicinal psychedelics movement, with the U.S. leading the way in decriminalizing these powerful drugs.
|The FDA grants MDMA-assisted psychotherapy Breakthrough Therapy Status||U.S.|
|COMPASS Pathways receives Breakthrough Therapy Status from the FDA for a psilocybin synthetic derivative||U.S.|
|Esketamine is approved in the form of Spravato by the FDA, followed by European Commission approval||Global|
|Denver, Colorado and Oakland, California vote to decriminalize psilocybin mushrooms||U.S.|
|The world’s first microdosing study using LSD is approved in Auckland||New Zealand|
|Usona Institute receives Breakthrough Therapy Status for psilocybin treatment for Major Depression Disorder (MDD) ||U.S.|
|Santa Cruz, California votes to decriminalize psychedelic substances including psilocybin, ayahuasca, and peyote||U.S.|
|MindMed becomes the first publicly traded psychedelics company||U.S.|
|More than 45 companies claim to be engaged in the development and evaluation of therapeutic candidates from psychedelic substances||Global|
|Oregon legalizes psilocybin and decriminalizes all drugs||U.S|
|Washington, DC decriminalizes entheogenic psychedelics||U.S|
|New research suggests DMT can stimulate the production of new brain cells||Spain|
|MAPS completes first successful Phase III trial of MDMA-assisted psychotherapy||U.S.|
|Analysts announce that psychedelics could become a $100 billion market||Global|
With study after study proving the many benefits of utilizing psychedelic substances for a range of both mental and physical conditions, huge progress in legitimizing this once stigmatized industry is now being made.
The Future of Psychedelics
Psychedelics’ newfound momentum looks set to continue well into 2021 and beyond, with the first major milestones hinting at what the next decade could hold for the industry.
|2021 (Jan)||In Hawaii, a Senate bill put forward in January could legalize psilocybin and psilocin, otherwise known as magic mushrooms||U.S.
|2021 (Feb)||With California now introducing new legislation to decriminalize most psychedelic substances, we could see a sea-change of decriminalization across the world||U.S.|
|2021 (March)||Over 285 active, soon to be active, and completed psychedelics trials are recorded around the world ||Global|
The next chapter in the psychedelics story will center around biotechnology, new drug discoveries, and the many unknown applications of each of these substances.
Currently, the application of therapeutic psychedelics has mainly been targeted toward mental health conditions such as depression and anxiety. However, we have only scratched the surface when it comes to the myriad of ways we could harness the power of these sacred plants.
A New Era of Medicine
While the history of psychedelics is undoubtedly complex, it is clear that they are starting to play an important role in the evolution of medicine.
Even though studies on these substances were halted in the past, new research has proven the potential psychedelics have to alleviate some of the most hard-to-treat diseases when used in a safe, controlled environment.
As a result, these groundbreaking drugs could save millions of lives and add trillions of dollars to the global economy—and that’s just the beginning.
Tryp Therapeutics is an early leader in the psychedelic medicine space. The pharmaceutical company leverages the therapeutic properties of psilocybin to create new solutions for the treatment of diseases with high unmet medical needs.
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