This week’s AGNOSTIC Paper examines a recent trend in the asset management industry: thematic indices. The sales pitch is simple. With a thematic index you can easily invest in the “next big things”. Artificial intelligence, aging population, e-sports and gaming, healthcare breakthroughs – just name your buzzword and you will find an investment product for it. This week’s paper is among the first that examine such thematic investments through the lens of the major factor premiums.
- Thematic indices are more volatile and have higher betas than the overall market
- Thematic indices tend to hold expensive, low-quality stocks with neutral momentum
- There are still reasons why thematic indices exist