For investors chasing “the next big thing,” there’s an oft-repeated warning: Predicting the future can lose you millions, even when you get it right.
For every iPad there’s a Newton. For every Facebook there’s a MySpace.
Yet as the decade begins, more cash than ever has flowed into thematic funds, which hunt for tomorrow’s winners based on today’s emerging trends. Assets under management doubled in three years to reach $175.2 billion at the end of December, according to data from Morningstar Inc.
Already in 2020 there are signs the growth will continue: Lazard Asset Management launched a new offering this month, the latest addition to an increasingly crowded field currently ruled by firms including Pictet Asset Management and Nikko Asset Management’s venture with ARK Invest.
Whether in electric vehicles, medical research or energy, riding macro waves of disruption is not for the faint of heart. Transformational trends don’t always look that way in the early days, while the pace of change can be punishing and unpredictable. An early Pictet bet on the first wave of clean energy was stymied by development costs. ARK Invest is currently raising eyebrows with its ultra-optimistic view of Tesla Inc.
Yet these days even traditional active managers are taking on more thematic exposure within their portfolios, according to Kenneth Lamont, senior research analyst at Morningstar in London.
“All of this bodes well for growth in the space in the coming decade,” he said.
Here’s a snapshot of some of the biggest funds in the thematic-investing world, plus the latest arrival:
Nikko AM ARK Disruptive Innovation Fund
Focus: DNA sequencing, energy storage, robotics, AI, blockchain technology
2019 Returns: 33%
Top Holdings: Tesla, Illumina, Invitae
The five trends targeted by this fund will converge to create a boom unseen since the second industrial revolution in the late 19th century, according to Renato Leggi, a portfolio manager at ARK Invest. He sees a parallel with history and simultaneous advances in electricity, the telephone and the internal combustion engine.