One investment strategy increasingly employed by some investors today is called “thematic” or “cross-sector” investing. Thematic investing, as we discussed in a previous column, strives to capture the upside of global mega trends, or long-term shifts in demographics, natural resource availability and the environment.
Houston financial advisor, Ricardo L. Nazario, Senior Vice President, Wealth Management, Morgan Stanley Smith Barney, Houston, says Web 2.0 is an area of thematic investing that continues to gain interest, despite some concerns that a bubble is brewing.
“There have been some high valuations for recent social networking IPOs, but I think these companies will grow into their valuations fairly quickly,” says Nazario. “We are focused on the shift away from decentralized computing, toward data centers and ‘the cloud.’”
Another new area in this investment strategy category is financial reformation, according to Nazario.
“The regulation being put into place is very focused on banks, not on the creation of credit,” he says. “I think the ingenuity of the financial services industry is going to become a bigger part of the economy. In addition, as a result of the crisis, many people don’t trust financial services institutions. I think transparency will be a significant focus of this reform.”
Still another area of thematic investing with a Houston connection is genomics, a branch of biotechnology concerned with applying the techniques of genetics and molecular biology to genetic mapping and DNA sequencing. A number of Houston companies and institutions are conducting genomic research and creating products and services for this industry.
“Within two years it will likely be possible to profile our own DNA and figure out what diseases we are predisposed toward; more importantly, this will also allow us to see what drugs will work more effectively for us,” explains Nazario.
“Because these profiles will be done in a clinical setting and not a lab, costs will be much lower. At this point, I am most optimistic about DNA-sequencing companies and the area of molecular diagnostics.”
Nazario explains that thematic investing has its critics since mega trends may take several years, if not decades, to materialize. And in today’s market, investors typically expect to see good returns much sooner than this.
“Investment horizons have become much shorter, perhaps too short,” says Nazario. “Taking a more thematic approach to investing may actually be a good thing, as long as the investor realizes that he or she needs a more long-term view.”
Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. For further details on retirement planning, discuss this topic with your financial planner and tax adviser.