A good example of thematic investing could be the use of tech products all around us.
The year 2020 has been anything but 20:20 – the vision that is referred to by ophthalmologists as perfect when standing 20 feet away!
The way 2020 has panned out, nothing could have been a bigger change for the entire world. The financial world was, initially, topsy-turvy as the equity markets sold off. Luckily, those losses have been recovered in the US markets.
Given the unimaginable changes that have happened, accepting the new reality is best advised for investors. For example, companies that are helping businesses continue to work, referred to as Work from Home stocks, have been on a roll. They have helped millions of large and small companies keep afloat while businesses in the airlines, travel, entertainment industries have been hit hard. For the moment, recovery in airline, hotel and other stocks look some distance away. Investors would do well to, broadly, stay away from these businesses. Tech, though, has seized the moment.
Smart investors change their positions accordingly and follow the macro trends. It can also be called thematic investing. Investors believe that a company or a group of companies can give better returns than others and follow a theme.
A good example of thematic investing could be the use of tech products all around us. The smallest of businesses are now running with good internet connectivity and some apps that are keeping them going.
The disruption of traditional businesses due to COVID-19 has had its impact. The way technology stocks have risen sharply tells how the biggest tech firms could be shaping the business and social world of tomorrow, too. Tech is opening up new opportunities for thematic investments like never before.
Top Tech Stocks
More digital tools: People are having to live a lifestyle driven by digital technologies. Businesses which have been able to turn digital first are driving working, learning, shopping and entertainment. Mobile apps usage has increased sharply as social distancing has become the norm.
Online learning companies could help bridge the mismatch and open up a new opportunity. E-commerce companies could expand rapidly and businesses will look for more and more tech-driven solutions across its operations.
Reskilling of labour: Experts are also expecting a labour market disruption and tech takes centre stage. Tech may make several jobs redundant and the workers will need to upgrade their skills and learn new ones. As new jobs get created, it may not be easy for earlier skills to be good enough for them and lower skilled jobs may face the axe.
Smarter e-learning or skilling for companies could be an opportunity that will prepare people for the digital era. It could also bring about a change in the education industry with improved accessibility and affordability.
De-globalisation: Economies could also see more localised production of several products and services. Several countries have been talking of protective measures as globalisation takes a backseat. Shrill voices in support could turn it into a more compelling option for policymakers.
Advances in automation and robotics have made it cost-effective for companies to go for local production. The pandemic has made it more compelling for economies to think on those lines. Increased local production could push demand for warehouses, data centres and some other sectors.
When the Dutch ophthalmologist, Herman Snellen, had developed the 20:20 system of measurement in 1862, he could never have imagined what year 2020 would look like. As it turned out, all of us living in the current could not have thought of it either.
Smart investors, though, can still ride the opportunity.