Many of us understand in an instinctive way that the world is being reshaped by a handful of powerful forces climate change and energy transition, Artificial Intelligence (AI), the rewiring of global supply chains amid heightened global conflict. We read about these things, and we talk about them, or even see them, increasingly, in our own lives. And yet, the way most of us invest has almost nothing to do with any of it, at least not actively. Thematic investing is ultimately an attempt to close that gap.
What is thematic investing?
It’s tempting to describe thematic investing as simply investing in trends, but that framing undersells it, and perhaps slightly misleads. We like to think of themes, at least the kind worth building a portfolio around, as structural forces broad, durable shifts in technology, behaviour, regulation, or the physical world itself that we expect to play out over years and decades.
Traditional investing tends to organise the world by sectors such as financials, healthcare, technology and industrials; categories that are somewhat structurally or geographically bounded. Thematic investing is about cutting across those boundaries. A portfolio tilted toward clean energy, for instance, will touch utilities, materials, engineering, and technology companies simultaneously. The organising principle is ultimately all about which long-run forces do market participants stand to benefit from?
The case for adding a theme
Our well-constructed core portfolios are designed to do something specific capture broad market returns across geographies and asset classes, manage risk through diversification, and compound quietly over time. That job is essential, and it’s worth doing well.
But a core portfolio, by design, is somewhat agnostic – at least thematically. It doesn’t actively lean into the energy transition. It doesn’t tilt meaningfully toward AI. It simply owns the world as it currently exists, largely weighted by market capitalisation, i.e. that it owns more of bigger companies, than it does smaller companies.
Thematic additions, what we sometimes call “satellite” positions, work alongside a core portfolio rather than replacing it. They introduce a deliberate tilt an expression of where you believe disproportionate value may be created over the long run, layered on top of the broad diversification that the core portfolio provides.
There are two distinct reasons an investor might want this.
The first is conviction. Some investors genuinely believe that certain structural forces, such as the build-out of AI infrastructure, the acceleration of the energy transition, the commodities supercycle that a green economy demands, will generate returns above and beyond the broader market. A thematic satellite is how you translate that conviction into a portfolio position without abandoning the discipline of your core.
The second is alignment. For a growing number of investors, it matters not just what a portfolio returns, but what it’s doing in the world. A sustainability theme, for instance, allows investors to express that preference in a meaningful way, not necessarily by avoiding things they find objectionable, but by actively leaning toward companies working on solutions.
Our three themes Sustainability, Technology, and Multi-Trend
At Moneyfarm, we’ve designed three thematic additions that reflect what we believe are the most compelling structural opportunities available today.
Sustainability focuses on companies across the clean energy, resource efficiency, and sustainable infrastructure landscape. This theme is, in many ways, the defining investment story of the coming decades. The consensus among the scientific community, and the policy makers that work with them, is that meeting net-zero targets requires a fundamental reorientation of the global energy system, and that transition requires capital, equipment, and engineering at a scale that inevitably creates substantial investment opportunities.
Technology is built around the companies building and enabling the next generation of digital and technological infrastructure. Technology has always been about pushing the boundaries of human capabilities, and changing the world. From semiconductor manufacturers to cloud platforms, to AI systems transforming how companies and industries operate. The investment-case here isn’t simply that “technology companies grow fast.” It’s that we are in the early innings of a general-purpose technology revolution, and general-purpose technologies like electricity, or the internet, have historically reshaped the entire economy around them over time.
Multi-Trend is the broadest of the three, combining elements of sustainability and technology with exposure to other structural themes energy security, defence, commodities, and other trends reshaping how governments and corporations plan for the future. It suits investors who want the widest possible exposure to structural forces, rather than a concentrated bet on any single one.
How do thematic portfolios perform?
Performance is, naturally, what most investors want to know about first and it’s the right question to ask. The chart below plots the total returns of the multi-trend theme (gb_multi), sustainability theme (gb_sust) and the technology theme (gb_tech) over the last three-years (23/06/2023 – 22/06/2026).
What the numbers tell a story about is worth briefly explaining. You’ll notice that the technology and multi-trend theme have out-paced the sustainability trade over this timeframe. There will be periods, sometimes extended ones, where a theme lags or exceeds other themes and or indeed broader markets. The energy transition and electric vehicle trade, for instance, ran hard between 2019-2021 but faced real headwinds in 2022 and 2023 as interest rates rose and some early enthusiasm unwound. Technology themes, by contrast, have seen extraordinary momentum in recent years, driven by the AI investment cycle. These divergences are features of thematic investing, and they reflect the fact that themes sometimes move to their own rhythms.
It must be said that between 2023-2026, the equity markets have rewarded a very specific set of factors, namely AI productivity, geopolitical risk premiums (defense), and commodity scarcity. Unfortunately for sustainability investors, those two worlds had rather little overlap with the sustainability theme’s exposure. The sustainability portfolio is constructed around companies delivering the green transition, which are largely capital-intensive, rate-sensitive, and growth-valued.
It must be stressed that the markets can sometimes behave and act like popularity contests. The trendiness and popularity of sectors can ebb and flow as time goes on. When a market theme gains traction, for one reason or another, investors begin to price in future growth early and aggressively, leaving little margin of safety. Inflows then chase recent performance, pushing valuations further from fundamentals. When sentiment eventually shifts, the reversal can be sharp and broad.
Over appropriate time horizons, the case for structural themes is built on the underlying logic that durable forces create durable returns, but the path is rarely linear.
Key considerations what to know before you tilt
Thematic investing comes with a particular risk profile that’s worth being clear-eyed about.
Concentration. By definition, a thematic portfolio is less diversified than a core portfolio. It concentrates a portion of your funds to a narrower slice of the investable universe, which means the performance of any given theme will be more sensitive to the underlying drivers of that theme. When those drivers are working in your favour, concentration amplifies your returns. When they’re not, it can amplify drawdowns.
Volatility. Thematic funds tend to be more volatile than broad market indices. The companies within them are often at the frontier of structural change, which means they frequently carry higher growth expectations baked into their valuations. Those valuations can be sensitive to changes in interest rates, investor sentiment, or the pace of adoption. Short-term price swings can be significant.
Time horizon. Thematic investing is, emphatically, a long-run exercise. The structural forces underlying our themes are real, but the timing of when markets fully price them in is genuinely uncertain. An investor adding a tilt should probably be thinking in five to ten year frames. Trying to time thematic exposure by jumping in at peaks of enthusiasm, or selling during drawdowns, is statistically one of the most reliable ways to underperform the theme itself.
Position sizing. Because themes carry more concentration risk, they work best as supplements to a diversified core, not as replacements for it. How large a thematic satellite makes sense depends on your risk tolerance and investment horizon. Moneyfarm carefully considers and reviews the thematic position sizing for you, based on your time-horizon, and risk level.
Looking out the long arc
There is a reasonable argument that we are living through an unusual convergence of structural forces when several major themes are accelerating simultaneously.
The energy transition is a capital deployment story of historic scale, driven by economics as much as it is politics. In some instances, renewable energy is now one of the cheapest forms of new electricity generation in most of the world. The commodities and infrastructure required to build out a green grid, such as copper, lithium, transmission lines, grid and battery storage, likely represent decades of sustained investment.
Artificial intelligence is beginning to move from research labs into the productive economy. The companies building the infrastructure for that shift through chips, data centres, cloud services, enterprise software, are absorbing investment at a rate not seen since the early internet era. Whether or not any individual AI application provider succeeds is somewhat besides the point, the infrastructure layer looks structurally indispensable.
And across both of these, a broader pattern is reasserting itself governments and corporations are spending heavily on resilience, whether that means energy security, domestic industrial capacity, or defence. The era of frictionless globalisation has given way to something more contested, and that shift is reshaping capital allocation in ways that cut across many of our themes.
None of this is to say the path will be smooth. There will be setbacks, policy reversals, technological disappointments, and market corrections. Some companies within these themes will fail. Indeed some of the excitement currently priced into certain parts of the technology market may not be fully deserved. But the underlying forces of decarbonisation, digitalisation, and the demand for resilience do not seem to be going away.
Thematic investing is, at its heart, an act of considered optimism a bet that the forces reshaping the world will create genuine value, and that participating in that value creation is worth the additional complexity and volatility it requires. The key is doing so deliberately, with the right time horizon, the right position size, and a clear-eyed understanding of what you’re signing up for.
For more information on how our thematic portfolios work, or to discuss whether adding a theme makes sense for your portfolio, please speak to your investment consultant.
Please remember that when investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. The views expressed here should not be taken as a recommendation, advice or forecast. If you are unsure investing is the right choice for you, please seek financial advice.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
