DWS: How thematic investing enables foresight investing

Feb 20th, 2019 | By | Category: ETF and Index News

By Eric Wiegand, Head of Xtracker’s Sales Strategy Europe & Asia Pacific, DWS.

Eric Wiegand, Head of Xtracker's Sales Strategy Europe & Asia Pacific, DWS.

Eric Wiegand, Head of Xtracker’s Sales Strategy Europe & Asia Pacific, DWS.

Thematic investing is about investing in the megatrends of the future, such as artificial intelligence (AI), big data or autonomous driving. The technologies mentioned have such high potential that investors should deal with them at an early stage in order to participate in long-term growth.

Although the interest in thematically oriented investment products has increased significantly, involvement in such future trends has not been easy so far.

Traditional sector funds – or ETFs – do not adequately reflect future trends, because they focus on companies that have grown strongly in the past.

Focus on tomorrow’s revenue winners

Thematic funds or ETFs differ significantly from traditional sector products in that they contain a forward-looking component.

For sector investments, it is important to know which companies are currently active in a specific industry. By contrast, thematic investing focuses on companies that are expected to lead the technological development of future themes.

These companies can also come from different industries. For example, when it comes to the ‘future of mobility’, software companies, IT suppliers, and chemical companies are relevant alongside automobile manufacturers. It is, therefore, crucial to select the relevant sub-sectors for each future trend.


Xtrackers Future Mobility UCITS ETF

– Tracks the Nasdaq Global Yewno Future Mobility

– Provides exposure to firms poised to benefit from
the sub-themes of autonomous vehicles, electric and
hybrid vehicles, and electric and lithium batteries.

– Trades on Deutsche Börse under the ticker XMOV GY.

Xtrackers Artificial Intelligence and Big Data UCITS ETF

– Tracks the Nasdaq Yewno Artificial Intelligence and
Big Data Total Net Return

– Provides exposure to firms poised to benefit from
the sub-themes of deep learning, cloud computing,
image recognition, speech recognition and chatbots,
and natural language processing.

– Trades on Deutsche Börse under the ticker XAIX GY.

Each fund is physically replicated, trades in US dollars,
and comes with a total expense ratio (TER) of 0.35%.

In the megatrend AI, for example, these relate to the computer performance required, the collection and evaluation of data, as well as applications such as speech recognition and cybersecurity.

Active and passively managed funds enable thematic investing. In the case of an ETF, specially designed and thematically structured indices are required.

The US company Yewno, for example, specializes in the creation of thematic indices. A unique procedure is used to select the stocks most likely to participate in nascent technological progress. With the help of AI technology, billions of data points are evaluated to identify the drivers of specific investment themes. In addition, millions of patents are analyzed to identify the leading companies in each segment. In this way, index composition focuses on companies that have competitive advantages in future sectors.

The decisive factor in establishing a thematic fund is that significant market size is achieved for companies in the future trends depicted. It is expected that sales in market solutions based on artificial intelligence will increase from currently around $7 billion to $90 billion by 2025. The global market for autonomous cars is expected to grow to $557 billion by 2026. There is therefore significant market breadth and depth available.

Innovative methodology with sustainable potential

There are many indications that thematic investing is not a short-lived trend, but a sustainable investment strategy that will continue to gain in importance in the future. In the past three years, investments in thematic ETFs in Europe have risen from one to almost seven billion euros. Since February, DWS has been offering easy access to ‘Future Mobility’ and ‘Artificial Intelligence and Big Data’ trends through newly launched thematic Xtrackers ETFs.

(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)

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