Thematic investing

Thematic investing aims to capitalise on broad trends that may play out over an investor’s time horizon. Rather than choosing to invest in individual companies that look promising, thematic investors tend to focus on specific areas of the economy.

For example, if a person believes that electric cars​​ are the way of the future, they could invest in companies that manufacture or subsidise electric cars, components, charging stations or charger parts for electric vehicles, or have products and services related to this sector. Rather than focusing on a specific company involved with the industry, such as buying individual Tesla shares​​, traders could invest in a rounded portfolio of companies, as it is hard to know how a specific company will perform in the long-term. Therefore, if the overall industry performs well, then the share basket should do too.

Basket trading focuses on multiple stocks at once that typically share a common theme. Basket trading is therefore the process of buying and selling multiple shares in one open position, as opposed to individual companies. This may appeal to traders that want to invest in a certain sector, industry or trend but don’t want to place their money in only one stock.

There are multiple types of share baskets; an individual trader’s stock portfolio could be seen as a share basket, as well as a hedge fund’s collection of holdings. Exchange-traded funds​​ (ETFs) work in the same way as share baskets, as they group stocks based on an investment strategy or theme. ETF traders will then encounter either profit or loss depending on which direction the stock values move within that specific ETF.

Many investment themes can be used to create shares baskets, some of which are explained in the examples below. There are virtually infinite themes, since a share basket could be created based on any idea, concept, or strategy within the financial markets.

At CMC Markets, we offer a wide array of thematic share baskets for you to trade on, whose performance mirrors the stocks that make up that specific group or basket. Some investors may wish to hold their positions in the long-term if they believe in the future rates of return, whereas other traders may opt to trade or even short sell the share basket to participate in fluctuating price action.

Below is a list of excusive share baskets that we currently offer to our clients. You can open a live account to deposit funds and start spread betting or trading CFDs on our share baskets, or a demo account, which comes with £10,000 worth of virtual funds to practise beforehand.

Exchange-traded funds (ETFs) are similar to a stock index or share basket, as they tend to include stocks based on certain themes. In total, there are over 1000 ETFs that are available to trade through our advanced trading platform. Some of the most popular ETFs on our platform that follow a thematic investing approach include the following:

As shown above, our Next Generation trading platform​​ provides many thematic assets to invest in, from shares to ETFs. From the Product Library, there are multiple ways to navigate to share baskets. Browse our financial instruments​​ by typing in a product name in the search box that match the name or description.

Thematic investing offers the advantage of investing in a group of stocks, as opposed to just one. This helps to diversify your trading portfolio while offsetting some of the risk that is inherent when investing in shares. Whereas the health of one company could decline rapidly and cost you to lose a lot of capital, this is less likely to happen with a group of stocks, although share baskets can still see large price swings.

A share basket is an efficient way to trade on a portfolio of stocks. Spread betting or trading CFDs on the RRG Momentum+ share basket, for example, provides investors with exposure to 10 underlying stocks in one transaction. Buying 10 individual stocks would possibly take more time and increase trading fees​​.

However, one of the drawbacks of share baskets is that they may provide lower returns compared to only buying the strongest stocks in the theme. For example, a share basket will include some high-performing stocks and others that provide only modest returns. Choosing to invest in only the top-performing stocks in the industry could possibly yield a higher return.

Share baskets also come with a fee, called an expense ratio. It is the price for investment management. The performance of the share basket is reduced by the expense ratio. If a share basket returns 30% in a year, and the fees associated with the basket are 2%, the net return to the investor is 28% for the year. Whether trading individual stocks or share baskets, the price of these products are subject to market forces. Their prices may move considerably, or not very much, at given times.

Traders may want to consider the use of a stop-loss order​​ to control risk if the price moves against them, and they could also consider having a profit objective, where they will take a profit when a desired outcome is reached. When trading any share basket or financial instrument, past performance is not always indicative of the future.