Thematic investing is an investment strategy that focuses on identifying broad trends or themes expected to shape the future – such as clean energy, ageing populations, or technological innovation. Once a theme is identified, the investment team look for companies that are directly involved in or likely to benefit from that theme. This differs from traditional investing, which typically starts by analysing individual companies or specific sectors.
Generate’s thematic investing strategy is grounded in the belief that earnings surprises drive share price performance – and that the market often overlooks the powerful trends fueling above-expectation growth.
What are the benefits of thematic investing?
A thematic investing strategy offers several distinct advantages over traditional investment approaches.
Flexibility
The portfolio can be adjusted to reflect market changes. Focusing on large-cap*, liquid equities keeps trading costs low, allowing quick exits from investments that may not be performing as well as expected and swift entry into new opportunities. In a fast-changing world, where trends can spread and evolve rapidly, this flexibility is a key advantage.
*companies with a large market capitalisation, typically over $10 billion.
Consistency
By not adhering to a restrictive investment style, the ability to achieve above-market returns is enhanced throughout the economic cycle. A theme-based approach allows portfolios to be adjusted in response to changes in the trading outlook. For instance, long-term, sustainable growth (secular growth) may be prioritised, while cyclical equities may be favoured when economic growth accelerates.
Insight
Investing in a diverse array of themes and industries provides insight into the global economy, allowing for adjustments to the portfolio ahead of significant changes in the cycle.
What are the risks of thematic investing?
Thematic investing is not for everyone. It involves an actively managed portfolio with a very high allocation to growth assets, predominantly made up of large cap international equities. There is a very minor allocation to income assets. Volatility is likely to be high. Given thematic investing focuses on specific sectors or trends, it may not be as well diversified as broader global equity funds increasing concentration risk. If a particular theme underperforms, it can negatively impact the portfolio.
The minimum investment timeframe for both the Generate KiwiSaver Thematic Fund and Generate Thematic Managed Fund is 10 years. It is a long-term investment option, better suited to those with a relatively high risk tolerance. Among Generate’s suite of funds, the Thematic Fund has the highest risk indicator (along with the Australasian Fund and Global Fund).
It is important to understand the trade-off between risk and return when investing.
All investments involve risk, and the level of risk and potential returns can differ based on where and how funds are invested.
The thematic investment process
A common thematic strategy is to invest in themes that are long-term and widely known, such as ‘aging demographics’, ‘technological disruption’ and ‘sustainability’.
However, at Generate we get more specific with our process. Timing is crucial for performance, so our themes target specific trends relevant to the current trading environment. Our investments may span various geographies and industries within a single theme.
For example, instead of a general theme like ‘green energy’, we might focus on a specific trend within the theme such as electrification. And instead of ‘technological disruption’, we might narrow the field to enterprise software companies with subscription-based revenue models that are best placed to monetise AI features.
We concentrate on themes that we think will provide earnings growth over the next twelve months and beyond – our goal is consistent market outperformance.
How we identify themes at Generate
Our team continuously monitors trends and patterns that we believe the market may overlook. These insights may emerge during quarterly earnings seasons, through product reviews on technology blogs, or by observing consumer behaviour in shopping malls or supermarkets.
Selecting equities
Once we identify a suitable theme, we select those companies we consider are best positioned to benefit from it. Our team conducts thorough bottom-up research, analysing each security’s financial strength, competitive position, and theme exposure.
Many portfolio equities align with multiple themes. For instance, Amazon benefits from online retail growth, increased cloud infrastructure demand, and video streaming expansion.
Our carefully selected portfolio also considers responsible investing criteria. For more details, refer to Generate’s Responsible Investing Policy.
What companies are in the Generate Thematic Fund portfolio?
The Generate Thematic Fund portfolio usually includes 8-12 themes and 50-60 stocks. For more details of the specific companies we’re investing in, download our Guide to Thematic Investing. This guide also includes information about our Thematic portfolio manager Nathan Field, and his track record.
Interested in thematic investing?
The Thematic fund is available both for Generate KiwiSaver Scheme and for Generate Managed Funds (these links will give you a simple overview of the fund). To dive deeper into monthly performance, click here to see the performance of the Thematic Managed Fund and here for the Generate KiwiSaver Scheme Thematic Fund.
Note: The Thematic fund only launched for Generate KiwiSaver Scheme on April 30, 2025, therefore the performance data is only recent.