Pick 'n' mix investing

People think working in finance is really hard. To me, it seems mostly like sitting around in meetings in posh offices drinking nice coffee. If you don’t work for a big bank, you can blame the banks for all your problems. If you do work for a big bank, you can blame the government regulators etc. Simple.

Supervising children’s parties, on the other hand, is super stressful. Yesterday I was somehow talked into throwing a candy making party for my now seven-year-old.

Although hosted by the very professional Spun Candy, being responsible for a troop of sugar high seven-year-olds near boiling sugar (155℃) was bad enough. Making sure they behaved themselves while working on the heated slabs that kept the candy malleable was hard. I’d had a sense of humor failure towards the end.

Spun Candy has a huge pick ‘n’ mix candies section. If you’re not in the mood for making your own candy, you can walk around and pick from bins of different candy and pay by weight.

The act of pick ‘n’ mix reminded me a lot of “thematic investing” an area I keep getting loads of questions from readers about.

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Say you think there is a trend in the economy - like the ageing population or the rise of artificial intelligence - and you want to invest in it. A decade ago to invest in these trends you would have to be a venture capitalist or a specialist investor. With the rise of index investing and computing power, investment firms can offer you custom made baskets of companies that follow a particular theme. It’s now possible to do this at a low cost.

A few years ago Motif Capital was a scrappy little website that listed companies under themes. I found them while looking for a basket of climate change companies. Thematic investing is obviously a good place to start a business as they’ve now evolved into an asset manager with the ex-head of the SEC on the board.They don’t seem to offer products outside the US market thus far, but if you’re American you can invest in themes such as ageing population and robotics.

If you’re feeling slightly geeky, I like this white paper by them.

BlackRock has jumped on the thematic bandwagon and offers “megatrend” ETFs to individual investors in the areas of ageing population, automation & robotics, healthcare innovation, and digitalisation.

It’s slightly old, but I also enjoyed this article on thematic investing by McKinsey.

Keep in mind that:

  • Themes take a long time to play out. For example, crypto investing is hot, but it might take 5-10 years for the winners to show themselves.

  • Index construction doesn’t have the deep research associated with traditional equity portfolios. Sometimes what you pay for is what you get.

  • Look into how the basket of companies you’re investing in gets chosen, is the company specialising in the trend or just “might” benefit from it.

  • Don’t get overexcited by the ability to pick ‘n’ mix, thematic investing should only be a part of a sensible portfolio diet.

As with all my posts, you should assume I have no idea about what I’m doing and that I’m just one google search ahead of you.

Happy 7th Birthday to my sweetie Indira!

Thanks,

Mallika