Thematic Investing: How to Invest in the Next Big Idea

From clean tech to artificial intelligence, thematic investing provides exposure to disruptive innovations that underlie the next frontier of investing.

In this infographic sponsored by Opto from CMC Markets, we identify the trends and investment themes that could reshape society and unlock future growth opportunities.

Long-Term Structural Growth Trends

Which four trends could define our future?

1. Climate Change: Extreme weather disruptions, investment in green solutions.
   • Climate-related risks and their implications are gaining serious attention from governments, businesses, and investors. Consider how global government green spending has risen by nearly 40% since 2008, rising to $714 billion in 2022.
2. Disruptive Technology: Exponential speed of technological advancement.
   • More technological progress is forecast to occur over the next ten years than the last 100 years combined. In fact, the computational capacity of the fastest supercomputers has skyrocketed from 17.6 quadrillion floating-point operations per second in 2012 to 1,100 quadrillion in 2022.
   • Floating point operations are a form of measuring the performance of supercomputers, some of which are one million times faster than a laptop.
3. Demographic and Social Change: Aging populations.
   • From China to Europe to the U.S., a great demographic transition is underway. The global elderly population, defined as those 65 years and older, is anticipated to double from 761 million in 2021 to 1.6 billion in 2050.
4. Next Generation Economy: Decentralization, Web3.
   • Decentralization involves distributing power away from a single, powerful authority. Web3, the third generation of the internet and web-based technologies, uses decentralized blockchain technology instead of a centralized database seen in many websites and applications today.

With these trends in mind, which themes are set to offer outsized investment opportunity over the next 10, 20, or 30 years?

Thematic Investing Opportunities

Here is a breakdown of the next wave of thematic investing opportunities. Each theme shows the market’s expected compound annual growth rate (CAGR) from 2022-2026, and a timeline for when growth is expected to slow down.

Although most themes will likely continue to grow for decades, some may experience plateauing growth as their industries mature.

*CAGR is for the period 2021-2026. **CAGR is for the period 2021-2025.

The space economy is attracting significant capital investment driven by its future role in climate change, security, and broadband telecommunication. For instance, satellites may provide data on greenhouse gas emissions to help improve renewable energy infrastructure.

In addition, lithium is forecast to play an even greater role in the economy. Global electric vehicles surpassed a record 10 million in sales in 2022, and will continue to drive demand for lithium looking ahead.

Characterized by boom and bust cycles, semiconductor chips help process vast amounts of data across smartphones, cars, home appliances, and smart infrastructure. As ChatGPT and AI advancements have taken off in the last year, several semiconductor companies have seen their stocks soar in value.

The investment landscape is set to change significantly in the years to come. While some themes are widely recognized, others are just beginning to gain traction.

Analyzing Themes Across the Adoption Curve

Diving deeper, let’s take a closer look at the growth outlook across four thematic investing opportunities and how to gain exposure to each.

1. Disruptive Technology: Semiconductors

Laggard: Growth is slowing

Pure-Play ETFs:

• SPDR S&P Semiconductor ETF (XSD)
• VanEck Semiconductor ETF (SMH)

Many chipmakers have long-term agreements with Big Tech. As the pace of technological advancement accelerates, the implications will be far-reaching for semiconductor companies. In 2022, the global semiconductor industry was estimated to have record sales of $636 billion.

2. Climate Change: Solar

Early Majority: Growth is moderate

Pure-Play ETFs:

• Invesco Solar ETF (TAN)
• Global X Solar ETF (RAYS)

Thanks to cost efficiencies, 90% of new global power capacity is forecast to come from renewables by 2027—with solar making up the lion’s share. Over 70 countries, 1,200 companies, and 1,000 cities have made net-zero pledges.

3. Demographic and Social Change: Smart Cities

Early Adopter: Growth is increasing

Pure-Play ETFs:

• Lyxor MSCI Smart Cities ESG ETF (IQCY)
• Amundi Smart City ETF (SCITY)

High-speed internet coupled with sensors, IoT, and machine-to-machine communication could drive a paradigm shift in urban design. By 2050, it’s expected that 68% of the world population will be living in urban areas.

4. Disruptive Technology: Space

Innovators: Growth is accelerating

Pure-Play ETF:

• ARK Space Exploration & Innovation ETF (ARKX)

Space has over 200 use cases including energy, agriculture, and defense activities. By 2040, it could become a $1 trillion dollar industry, up from $469 billion in 2021.

Each theme could present a significant opportunity for investors, fueled by rapid technological advancement and broader societal shifts.

How can investors gain exposure to these thematic ETFs?

The Opto App helps users identify the top trends shaping our future. Compare, analyze, and track 40 disruptive themes and over 160 ETFs.