Investors have many options when they want to invest in the stock market. Buying stocks through vehicles such as mutual funds, ETFs, and individual stocks is the most common way to invest.
The problem, however, is that there are thousands of mutual funds, ETFs, and individual stocks to choose from, and it's difficult to know when is the right time to invest in a fund or stock.
Investors wonder if they should invest in the broader market (for example, the S&P 500). Or perhaps lean towards growth, value, US or foreign markets? Or should they take a more narrow focus, such as specific topics like artificial intelligence?
With the stock market on track to post a second straight year of strong returns, many investors are likely unsure what to do with their money now. Below are five investment themes investors can consider in 2025.
What is thematic investing?
Thematic investing involves focusing on a somewhat narrow range of stocks that can generate above-average growth in emerging industries or parts of the economy.
Related: Top analysts reveal their S&P 500 forecasts for 2025
Thematic investors typically focus on transformative industries or social trends that have the potential to reshape industries and create new markets over time.
For example, companies that operate in the FinTech or digital payments field, such as Block (SQ) o SoFi Technologies (SOFI) could benefit from the increased use of credit and debit cards around the world, the deployment of new technologies such as blockchain and the introduction of cryptocurrencies such as bitcoin (along with greater adaptation by consumers and the large global financial companies that own, trade and custody these assets).
Various investment companies offer various thematic investments, including (mainly in the form of ETFs) Goldman Sachs, JP Morgan, Global x, State Street Global Advisors, First Trust, Invesco, Advisor Shares, Blackrock (i Shares), Fidelity, Charles Schwab, and others.
Examples of thematic investing
Some examples of thematic investments include stocks or funds that focus on electric vehicles, such as Tesla. (TSLA) Obesity/GLP-1 Weight Loss Drugs like Eli Lilly (LYLY) cloud computing companies like Alphabet's Google Cloud (GOOGLE) cybersecurity, lithium, telemedicine, US offshoring, renewable energy, online gaming, space companies like Rocket Lab USA (RKLB) genomics, water scarcity, artificial intelligence, including stocks like Nvidia (NVDA) robotics, marijuana or healthy eating.
Of course, this is just a small sample of the many themes that investors can target, and there are many more stocks that could benefit from those themes than those listed above.
The pros and cons of thematic investing
Advantages…
- By choosing a thematic investment theme that generates attractive results, you can help boost the portfolio's overall investment performance.
- Adding thematic investments can provide greater portfolio diversification when added to more traditional investments.
- Thematic investing can help people align their investments with their own personal values or interests.
Cons…
- Thematic investments often focus on a fairly narrow group of stocks, which can increase the amount of risk involved.
- The time period involved in thematic investing may be longer than that used for traditional investments.
- Thematic investing can add additional volatility due to the rapid transformative changes that often occur in various industries.
Thematic investments worth considering in 2025:
Here are five interesting themes that investors can focus on in the coming year.
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- artificial intelligence. The rise in interest in artificial intelligence in recent years is due to interest in generative ai, which is the ability of ai to generate text, images and videos based on text prompts. ai research company OpenAI built a GPT (pre-trained generative transformer), ChatGPT, which became the basis of future models used for ai development. Today, multiple investments allow investors to access companies that are actively involved in the development, implementation or research of artificial intelligence. According to www.Statista.com, the artificial intelligence market is currently around $200 billion and is expected to grow to $1.8 trillion by 2030.
- Defense. Unfortunately, the world is insecure today, with multiple geopolitical flashpoints around the world. According to Deloitte and the Stockholm International Peace Research Institute, there were approximately 59 countries at war in 2022 (27 more countries than in 2019). As a result, global defense spending exceeded $2.4 trillion in 2023 (the most recent data available at the time of publication). While things could change, given recent global trends, it appears defense spending will likely remain on an upward trajectory.
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- Relocation. For several years, American manufacturing activity has shifted overseas, driven by lower costs, helping American companies improve their bottom lines. However, that trend is now beginning to reverse. Due to the desire to 1) make the US less dependent on foreign manufacturing, 2) increase supply chain resilience, 3) rebuild the US industrial and manufacturing base, and 4) increase jobs manufacturers here at home, there has recently been a greater emphasis on offshoring in recent years. This trend is likely to continue during the next presidential administration.
- Robotics. Companies with large manufacturing operations around the world have focused more on robotics. The main reasons for this include an increased focus on driving automation (and profits) and helping offset the impact of an aging workforce in many industrialized countries. According to Mordor Intelligence, the global robotics industry is currently worth $89.7 billion and is expected to grow around 12.5% annually through 2029.
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- Cybersecurity. Unfortunately, it's hard to go a week or two without hearing about a major cybersecurity breach at an American company. Cybersecurity breaches can cause devastating damage to businesses and lead to multi-million dollar damages. As a result, companies are spending more and more money defending their networks and computer systems from hackers and foreign government agents. For reference, research firm IDC forecasts that “the global security products market will continue to experience double-digit growth over the next five years with total revenues reaching $200 billion by 2028.”
Is thematic investing a smart decision?
Thematic investing involves identifying and capitalizing on trends and themes that have the potential to drive long-term growth and outperformance of the market. Investors can access them in several ways, such as through ETFs, mutual funds, or individual stocks. In many situations, thematic investing means gaining access to companies or industries that are undergoing transformative changes or rapid growth.
More Wall Street analysts:
- Top analysts reveal their S&P 500 forecasts for 2025
- Analysts revise MicroStrategy stock price target amid bitcoin rally
- Google analysts are scared by the surprising news of the breakup
This investment approach can offer investors a unique way to diversify their portfolios, align investments with their personal values, and potentially achieve higher returns.
However, it is by no means guaranteed that thematic investments will pay off, and even if they do, how long it might take to pay off.
As a result, thematic investing should be considered alongside (rather than replacing) more traditional investing due to the potential risks and volatility sometimes associated with it. Investors should carefully consider these issues before pulling the trigger.
Related: Veteran Fund Manager Offers Alarming Forecast for S&P 500
