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Thematic: Investing in change?

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Thematic research paper

Indexing change: Understanding MSCI thematic indexes


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Thematic research paper


Thematic Investing – What is it?

Thematic Investing – What is it?

Our suite of thematic indexes represent the performance of companies associated with long-term, structural trends that many investors expect to be dominant in the future and drive performance of their investments in a rapidly-transforming world. Profound demographics changes, technological disruptions and changing consumer behavior are transforming societies globally and thus many investors are seeking to realign portfolios to these changing dynamics.

Thematic investing offers an alternative framework for analyzing investment opportunities. It is different from investing based on topical fads as it is an investment approach where the investment process focusses on how the world around us is changing. The thematic investment process relies on articulating the investment objective and then selecting companies which will benefit from wider adoption of the theme.

  Traditional Investment Thematic Investment
Investment philosophy Leveraging historical data to predict future “Winners of the past will evolve to continue winning in future” Forward looking - “Future is going to be drastically different from past and future winners will be the ones who anticipate and understand this change”
Investment approach Asset classes are the building blocks to construct portfolios Cross-section of investment themes with country/regional exposures
Alpha generation Based on selection of sectors and securities relative to a benchmark Based on conviction on Themes and identification of securities with significant exposure to the Themes
Client needs Based on client risk appetite
(E.g. Fixed income funds for investors with low risk tolerance)
Based on client situation
(E.g. Ageing population theme for a pension fund)
Research focus On asset classes, sectors and securities On Structural themes, evolution and investment opportunities

Thematic Framework 1

Thematic Framework

Our thematic framework is centered around identifying emerging macroeconomic, geopolitical, technological trends which are structural and transformative in nature and which the investor expects to influence behavior and needs over the long term.

Thematic Investment is not just another product variant, but it is a whole new framework to understand structural changes happening around us and translating that into a long-term investment strategy. It is a top-down investment approach that attempts to identify long-term, structural trends that the investor expects to be dominant in the future and drive performance of their investments in a rapidly-transforming world.

Examples of Thematic approaches:

Thematic Framework 2

Macro-economic trends
Micro-economic themes


Megatrends are the structural trends that are expected to have a long-term impact on growth in a rapidly transforming world. Examples include Ageing Populations, Globalization, Resource Scarcity or Disruptive Technology.

Macro-economic trends

Macro themes capture the trends impacting the broader macro-economic environment. These include the impact of for example rising rates, inflation, the growth of an Emerging Markets middle class, or global trade patterns.

Micro-economic themes

Micro themes capture trading opportunities that mostly play out at the sector or company level. Examples include sector investing, strategies based on company characteristics (e.g. ownership or management structure) or geopolitics.

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Over the past few years, several structural economic changes have evolved, from among other things, shifting demographics and social change, technological breakthroughs to climate change and resource scarcity. As new entrants disrupt the incumbents, investors may want to realign their portfolios to these changing dynamics.

Our new range of megatrend indexes are useful for investors focused on the rise of smart cities, the digital economy, future mobility, disruptive technology and millennials.

Key features of our new megatrend indexes:

  • Direct capture of the thematic objective, for e.g. if the thematic index is robotics, the objective of this index is to capture the performance of companies that potentially stand to benefit from increased adoption and utilization of robots and automation.
  • Leverages new technologies and machine learning to accelerate index development
  • Rules-based stock selection using economic linkage to the theme
  • Truly global coverage
  • Robust methodology and rebalancing over time adapts index as theme evolves
  • Designed to be scalable and flexible

How our megatrend indexes are constructed?

Our enhanced approach gives us a flexible and fast capability to capture themes directly. We first understand the theme and its drivers and so break it down into its component ideas.

We construct these thematic indexes with scalable and flexible methodologies. The index methodology systematically identifies companies based on the linkage of their business lines and business description information with the theme being modelled. We derive an economic relevance score to assess the strength of that link so as to select the final index constituents.

Below is a comprehensive list of our megatrends indexes:

MSCI Cybersecurity Index
MSCI Cybersecurity Index aims to represent the performance of companies that potentially stand to benefit from increased investment in systems, products and services which provide protection against cyber-attacks.

MSCI Ageing Society Opportunities Index
Ageing Society
MSCI Ageing Society Opportunities Index aims to represent the performance of companies which cater to the health, recreation and lifestyle needs of the older population.

MSCI Robotics Index
MSCI Robotics Index aims to represent the performance of companies that potentially stand to benefit from increased adoption and utilization of robots and automation.

MSCI Efficient Energy Index
Efficient Energy
MSCI Efficient Energy Index aims to represent the performance of companies which cater in the business of offering products and services that promote power generation using renewable sources.

MSCI Digital Economy Index
Digital Economy
MSCI Digital Economy Index aims to represent the performance of companies that potentially stand to derive significant revenues from the digital economy value chain.

MSCI Disruptive Technology
Disruptive Technology
MSCI Disruptive Technology Index aims to represent the performance of companies which cater to themes commonly associated with or described as “disruptive technology.”

MSCI Future Mobility Index
Future Mobility
MSCI Future Mobility Index aims to represent the performance of companies that potentially stand to derive significant revenues from energy storage technologies, autonomous vehicles, shared mobility and new transportation methods.

MSCI Millennials Index
MSCI Millennials Index aims to represent the performance of companies that potentially stand to derive significant revenues from industries that target the preferences of the “millennial” generation.

MSCI Smart Cities Index
Smart Cities
MSCI Smart Cities Index aims to represent the performance of companies that potentially stand to derive significant revenues from smart solutions for urban infrastructure.


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New thematic insights

New thematic insights

  • Millennials 

  • Demographic change and the impact of a generation

  • In the long-term, few forces influence society more than demographic dynamics. Historically, population trends have been at the core of shaping societies because new generations have brought with them new ideas and new behaviors. We have little reason to think the first half of the 21st century will be an exception to this well-established pattern. And the generation that is often flagged by commentators and institutional investors alike as potentially having the strongest impact in shaping societies in the coming years is the MILLENNIALS generation.

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  • Future Mobility 

  • Understanding a new transport ecosystem

  • With FUTURE MOBILITY, we reflect on a wider eco-system of transportation. Where in the past, the automobile industry dominated and sparked derivative industries, today the notion of on-demand mobility brings with it a new power-balance. The industry value-chain incorporates tech providers, fleet managers and mobility-as-a-service aggregators, just as it is supported by energy and infrastructure providers.

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  • Smart Cities 

  • Defining the trend, describing the transition

  • Against a backdrop of increasing urbanisation, we explore the now more quickly emerging eco-system of companies engaged in SMART CITIES solutions. Infrastructure, energy and mobility make up key industries, but the eco-system also extends to connectivity and data management as enablers.

  • Download the insight

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Disruptive Technologies

Disruptive Technologies

Innovation Meets Society and Business

The idea of disruptive technology was introduced by Harvard Business School Professor Clayton Christensen in the early 1990si. He suggested that enabling technology, innovative business models or value networks have the potential to make products and services more accessible and affordableii. Moreover, such technologies have the potential to lead to new breakthroughs in many industries, especially mobile internet, autonomous vehicles, robotics and cloud computing. The idea is that “disruptors” have the power to substantially alter the way consumers, industries or businesses operate, and hence the potential to derail established sectors and create new opportunities.

As an example, the telecom industry was first shaken up by the first widely affordable cell phones but then effectively replaced with the emergence of the smartphone industry. Another example would be social networking, which has dramatically changed the way society communicates. The MSCI ACWI IMI Disruptive Technologies Index is one of an expanding range of MSCI thematic indexes designed to represent the performance of companies associated with structural changes occurring in the economy. We think the impact of disruptive technologies on society and business is one such megatrend.

The Lifecycle of Technology Disruption

As new technologies emerge, they can disrupt the status quo in different ways. Disruptive technologies can displace established ones or create completely new industries. We can describe a model for the lifecycle for such disruption. As a first step, a trend may emerge in an industry and new actors (particularly startups) may enter and create ambitious disruptive models through innovation. Then, the startup businesses start to grow fast and every actor adopting the new model seems to win. However, the truly disruptive model will likely develop much faster. Once the disruptor peaks and growth slows, the model starts to collapse: incumbents either fail or acquire a startup to catch up with the new market leaders. Finally, the new leaders dominate the industry and the cycle can repeat. This situation can be seen in the retail industry: Walmart bought for US $3.3 billion in 2016, but Amazon and Alibaba now lead the global retail sector. The tech giants Facebook, Amazon, Microsoft, Google and Apple, all once new entrants, continually innovate, defend and adopt new technologies: they have collectively made over 750 acquisitions.iii

New leaders have emerged across many industries worldwide. As Tom Goodwin in Techcrunch observed in the 2015 article “The battle is for the customer interface”iv, Alibaba is the world’s biggest retailer but has no inventory; Uber is the biggest taxi firm but owns no vehicles; Airbnb is the world’s largest room provider for tourists but owns no hotels; and Facebook, the world’s biggest media company, currently creates no content.

MSCI ACWI IMI Disruptive Technologies Index

The MSCI ACWI IMI Disruptive Technologies Index seeks to capture the performance of companies that develop new technologies that potentially will impact many sectors. We focus in the index objective on nine technologies that are, or could become disruptive: 3D printing, internet of things, cloud computing, fintech, digital payments, healthcare innovation, robotics, cybersecurity, clean energy and smart grids. The index aims to represent the performance of companies that are expected to derive significant revenues from the rapid transformation of our world based on these technologies.

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Factsheet  Performance   Methodology

i “The Innovator’s Dilemma”(1997) Harvard Business Review Press, reprint 2016.


Smart Cities

Future Mobility

The digital economy

Meet the Millennials

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Our Thematic Indexes can be licensed to clients for a variety of purposes:

How thematic indexes can be used?

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