In thematic investing, using ETFs to get broad exposure to themes and megatrends is usually the way to go. In fact, we’d go as far to say that as a general rule most retail investors should invest using ETFs rather than single stocks anyway, whether investing thematically or not. That might seem like a bold statement, but it’s based on solid reasoning. The reason for that is, in reality, most retail investors lack the expertise and time for single stock investing, and are taking on a lot of risk by holding small numbers of single stocks, whereas ETFs offer so many advantages for retail investors. Let’s dig into them:

1. Diversification: ETFs hold baskets or big groups of stocks (or other assets) which gives instant diversification. This reduces the risk of investing in single stocks or single assets.
2. Low Cost: ETFs are generally cheaper than mutual funds because they are usually managed passively against an index. Lower cost means more of your money stays invested.
3. Liquidity: although they are funds, ETFs actually trade like stocks on exchanges, which means they can be bought and sold throughout the day at market prices. This provides much more flexibility over mutual funds, which are priced at the end of each day.
4. Transparency: ETFs usually disclose their holdings each day, which shows investors every day what exactly they are invested in.
5. Tax Efficiency: in some (but not all) countries there are tax advantages to ETFs.
6. Broad Market Access: ETFs instantly give investors the ability to get exposure to a broad range of markets, sectors, countries and styles of investing – like themes and megatrends! For example, a clean energy ETF.

In short, ETFs generally give investors best bang for their buck and good trade-off between reward and risk.

In thematic investing, we advocate capitalizing on themes by investing in thematic ETFs.

Not financial advice, posts for informational purposes only, always do your own research.