The Future of Investing: Thematic ETFs Explained

Bryce: [00:00:31] Welcome to get started investing a podcast where we help you learn to invest in 15 minutes or less. Each episode we take one real world business story and apply a key investing lesson to help you build your investor toolkit. If you're joining us for the very first time, welcome. We strongly recommend that you scroll up and start at episode one. And just a reminder before we start that we are not experts, we're not financial professionals, and we are not licenced. We are here learning just like you, and nothing on this podcast should be taken as advice. But with that said, let's crack on. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you

Alec: [00:01:09] I'm very good, Bryce. Good to be back for another episode. Let's get straight into it. The news story that you actually came across this week, Australia's Premier science organisation, the CSIRO. Yes. What does that stand for? 

Speaker 2: [00:01:25] Good question.

Bryce: [00:01:26] Actually I have no idea. 

Alec: [00:01:30] Commonwealth scientific and something or research organisation. 

Bryce: [00:01:33] Love it. Oh my God. 

Alec: [00:01:36] They should know that they publish every decade. They publish a report Our Future World. And in this report they've identified seven global megatrends that quote, hold the key to the challenges and opportunities ahead. [00:01:50][14.3]

Audio clip: [00:01:50] What are the permanent changes that are happening out there in the world today that can drive exponential growth opportunities going forward? A new report has laid out the major challenges that will shape our lives in the coming decades. The research from the CSIRO identifies seven so-called mega trends the key issues that need action now to avert threats in the future. Infrastructure is one of the investment megatrends for the next decade, providing incredible opportunities for those who can participate. Megatrends are building gradually around every company, every individual. They'll impact your career, they'll impact your organisation. And our ability to see early what's happening and take proactive action is a core to our ability to get a better outcome. [00:02:32][41.8]

Alec: [00:02:33] And megatrends is a big term in investing because those massive structural changes that it will upend the world and the economy and political systems. That's what we're talking about when we talk about a megatrend. And in those big upheavals, often come good investment opportunities. [00:02:52][18.9]

Bryce: [00:02:52] And today's lesson is finding ETFs for a changing world. Taking this news article that we found and I guess trying to demonstrate how you can then endeavour to turn that into investment opportunities. Now, we're not saying at all that we agree with all of these megatrends or that they are all involved. We'll get to that or that they are all investment opportunities or that they'll all play out to be successful. [00:03:16][23.6]

Alec: [00:03:17] Or as even seven. [00:03:17][0.7]

Bryce: [00:03:18] Or that there's even seven there. But it's merely to show how you can use a real world business story and translate that to investment ideas. [00:03:26][8.1]

Alec: [00:03:26] So let's get into it. Bryce What are the seven? Hit me with what's going to change our world. [00:03:32][5.3]

Bryce: [00:03:32] So in the first one was adapting to a changing climate. And this is with reference to the protection of livelihoods, infrastructure and people's quality of life as the climate changes, rising sea levels, building appropriate infrastructure and housing, those sorts of things. [00:03:47][15.3]

Alec: [00:03:48] So if that's about adapting to the changing climate, the next one is about, I guess, stopping the climate, changing any more than it already has. Leaner, cleaner and greener. This is the global push to reach net zero and beyond, protect biodiversity and use resources efficiently. [00:04:04][16.4]

Bryce: [00:04:05] The escalating health imperative is the third, which is the promotion of health in the face of rising demand, demographic, ageing, emerging diseases and unhealthy lifestyles. [00:04:14][8.9]

Alec: [00:04:15] Fourth one geopolitical shifts the increase in efforts to ensure global stability, trade and economic growth. [00:04:22][6.8]

Bryce: [00:04:22] Fifth is diving into digital, the rapidly growing digital and data economy. [00:04:27][4.0]

Alec: [00:04:28] The sixth, increasingly autonomous. The rise of artificial intelligence and advanced autonomous systems to enhance productivity and outputs across all industries. [00:04:37][9.1]

Bryce: [00:04:37] And then closing out, unlocking the human dimension to elevating importance of diversity, equity and transparency in business policy and community decision making. So Ren nothing too unfamiliar there. [00:04:49][11.7]

Alec: [00:04:49] Yeah. So there the seven megatrends that the CSIRO have identified that are going to upend the world. I guess the question is, okay, so they're the trends now. How do we as investors find opportunities amongst those trends? And the great thing for us is we don't have to pick an individual company few. [00:05:07][18.2]

Bryce: [00:05:08] That is true. [00:05:09][0.3]

Alec: [00:05:09] The there are so many ETFs these days and we've spoken on this podcast and over on Equity Mates about the number of ETFs and how many is too many. But the good news for us as investors is there's plenty of choice to invest in these themes as a whole rather than any particular company. Yeah. The challenge and what we're going to talk about today is how do we actually find those ETFs and how do we navigate them? Because, okay. CSIRO You're telling me that adapting to a changing climate is a megatrend? I believe that. But then how do I actually position my portfolio to invest in the companies that are going to benefit from that? [00:05:49][39.8]

Bryce: [00:05:49] So before we actually go. [00:05:50][1.1]

Alec: [00:05:51] 10 minutes to go through. [00:05:52][1.0]

Bryce: [00:05:53] A lot of big questions to answer that. And we're going to get to the ETFs in a moment. But then worth touching on the concept of a megatrend, because it's clear that the CSIRO have categorised what really feels like nothing new or nothing that we don't really already know or that feels like they're always on a it's a constant for some of us. [00:06:16][22.6]

Alec: [00:06:17] So there's a few ways you can identify megatrend. So it has to be a long term structural shift. It's going to transform economies, it has to be in an area of high. [00:06:25][8.0]

Audio clip: [00:06:25] Innovation and. [00:06:26][0.5]

Alec: [00:06:26] Disruption. [00:06:26][0.0]

Audio clip: [00:06:27] And it has to also, and I think it's really important. [00:06:29][2.0]

Alec: [00:06:30] Have to have government support and it has to be intertwined with demographics. So I think it's just a watch out when we come across the term megatrends because it's probably one of the most used terms in investing at the moment. Every product issuer that is trying to sell an ETF or a fund talks about a megatrend that it's exposed to or investing in megatrends. And if everything's megatrends, nothing is. And so I think it's just when we talk about megatrends, we're talking about these like powerful, disruptive, transformative forces that change industries and economies. And like climate change is a classic example of a megatrend. It is upending everything artificial intelligence and like autonomous systems, another classic example of a megatrend that will change everything. I guess I would challenge the CSIRO on maybe geopolitical shifts isn't so much a megatrend as just something that is constantly happening. The megatrend underneath that might be the rise of China, yeah, yeah. Or the rise of India. Um, so I think it's just important that as investors, the reason that megatrends are interesting is because they are these like unstoppable, powerful forces that change everything. But you just got to be careful because not everything in the world is an unstoppable, powerful force. And the classic example I think, that illustrates that is podcasting. Podcasting is a trend. It's taking it's taking market share from radio. It's doing all these cool things. There's been a lot of growth in the space. There's money to be made in investing in it. But it's not a megatrend. I would say it's not inevitable. It's not unstoppable. It's not transforming political systems. It's a changing. [00:08:17][107.5]

Bryce: [00:08:18] Society. [00:08:18][0.0]

Alec: [00:08:18] The difference between a trend and a megatrend is an important thing, and the use of the word megatrend is a watch out. Yes. As much as I'd like podcasting to be a megatrend. All right, but. [00:08:28][10.3]

Bryce: [00:08:29] Maybe one. [00:08:29][0.3]

Alec: [00:08:29] Day. How do we find these ETFs? [00:08:30][1.2]

Bryce: [00:08:31] The simple answer is Google. [00:08:33][1.9]

Alec: [00:08:35] All right, done with 6 minutes to spare. [00:08:36][1.6]

Bryce: [00:08:37] No, I think the look, the lesson here is that there are so many ETFs out there, and I'm going to throw to the What's in a name episode that we did quite recently as well, because the important part is that you are conscious of some of the names and you do look under the hood for a lot of these things and we can't stress that enough. You've got to do your own due diligence. But now just to call out that this is just a list and we are deliberately giving you more than you could ever go and invest in, so it can't be construed as advice of Yes, use this as a list to start doing your own research, the pure thought starters. And as and to be honest, there's hundreds more that could come under each of these as well. So yeah, but there is so much out there. [00:09:18][41.2]

Alec: [00:09:19] So not advice, just a list, do your own research. But in saying all that Bryce what we have tried to do is take each of the CSIRO has seven megatrends and find some examples of ETFs that fit under that. So maybe let's start with probably one of the hottest topics in the investing community at the moment. Lina Cleaner and greener, changing our energy grid and everything that goes along with that. [00:09:43][24.8]

Bryce: [00:09:44] Yes. So an ETF comes in this space what feels like almost every day. But here are four that have come across our desks. There's the iShares ESG Aware USA ETF. Its ticker is NASDAQ, ESG U. The next is Global X Wind Energy ETF. The ticker is NASDAQ and DIY windy, you could say. And then the third iShares global clean energy Nasdaq, ICL and and then the Vaneck vectors global clean energy as well. The ETF is clean C, L and a so there's four to get you started, but plenty in this space if you're interested in the lane cleaner and greener thematic. [00:10:26][42.1]

Alec: [00:10:26] Yeah. And I think the. The next, adapting to a changing climate. You're going to find those two are pretty interlinked. But with each of these ETFs, there are some really broad ones. So Betashares have a climate change innovation ETF, the ticker 88, general climate change innovation, quite a broad category. And then you'll find that there are more narrowly construed and focussed ETFs. For example, Global X's Lithium and Battery Technology ETF on the Nasdaq with the ticker lit. Yeah, it is like it takes a tiny chunk of this big megatrend and really focussing on what on that. So within each megatrend there's of, I guess, a variety of lenses that you can invest in similarly. [00:11:14][47.1]

Bryce: [00:11:14] So let's move on. Escalating health imperative. Now, personally, we talk about our circle of competence, and this is an area where ETFs really sort of help me because getting an understanding of biometrics and all that sort of stuff is not in my circle of competence. But here are a couple of ETFs. There's the iShares Global Healthcare ETF. It's listed all over the place and it's listed on the New York Stock Exchange. [00:11:36][21.8]

Alec: [00:11:36] I think what you'll find with a lot of these big ETF issuers is that they run a global fund and they list it sort of in a lot of places. Yeah. So that's good. Yeah. That means the opportunity set is becoming more and more global for us. [00:11:48][11.3]

Bryce: [00:11:48] It's great. It's listed on the ASX here in Australia. Its ticker is IEX Exchange and it's listed on the London Stock Exchange ticker, confusingly zero. [00:11:55][6.8]

Alec: [00:11:55] JM FM Yeah, and also on the New York Stock Exchange with the same ticker as Australia Exchange. Let's rip through these. So all the major issuers have a just a general health care one. So you mentioned iShares Global Health Care, Vanguard Health Care ETF, VHA Betashares Global Health Care Ticker Drug Love that Vaneck Global Health Care Ladies Ticker hlt h. So general health care one's for all the major providers. But then there are some specific health care technology ones are genomic revolution. I r k g I think that's down like 90%. Yes, I says biotech ETF, IBB. So again, like you got general health and then you've got more specific health care technology. [00:12:40][45.1]

Bryce: [00:12:41] Yeah, the third is J. A fourth as I'm sorry, is geopolitical shifts. Now when you're thinking about these megatrends, you've got to think about how they are going to be changing, where is money going to be spent that actually benefits companies that are in the space? And geopolitics was saying a lot at the moment. This will push defence spending as an example of how you could think about this. So then you go, okay, that's the first step. Defence spending, what ETFs are in that space. So there's the iShares US Aerospace and Defence ETF. It's listed on the Nasdaq and the ticker is ITA. Then there's the Invesco Aerospace and Defence Ticker Pay and also SPDR have one Aerospace and Defence ticker is X Air. [00:13:22][41.2]

Alec: [00:13:23] This geopolitical shift story, as we said, it may be better construed as the rise of certain countries, the rise of China, the rise of India. Everyone has a China ETF. All the major issuers, wherever you are in the world, everyone has an India ETF, wherever you are in the world. There's one listed Googles your friend here, but there's so many. Let's just keep rolling. [00:13:44][21.9]

Bryce: [00:13:45] Yeah. Diving into digital. No surprises here. You're looking for tech, you're looking for fintech innovation payments, all these sort of emerging technologies that are changing our world. And there's a specific somatic ETFs that touch on those global X, for example, have telemedicine and digital health the tick as a doc, and then ACH always appears in this space. FinTech Innovation. The ticker is a k k. You start to get a feel for the ETF providers as well. Global X really love playing in the thematic space, whereas the Vanguards have more broad based market indexes. So when you start doing your research, keep that in mind as well. 

Alec: [00:14:24] I think increasingly autonomous, there's a few different robotics ETFs. Robo Global seems to be the biggest player in the space, but they're not the only player. The Robo is listed in the New York and also here in Australia, there's bots listed on the Nasdaq, there's iShares Automation and robotics, which is listed in London and in Tokyo. There's a number of different automation and robotics ETFs as well. 

Bryce: [00:14:50] And then closing out, unlocking the human dimension, which is all about inclusion and diversity. There's ETFs that are set in this space as well. IShares Refinitiv Inclusion and Diversity ETF. The SPDR have one called Gender Diversity Index and then UBS Global Gender Equality ETF, the ticker listed over in Switzerland. 

Alec: [00:15:09] G.A. A Yeah, so that probably feels like quite a big list. It definitely felt like a big list when we were just writing it out. But I think the takeaway here is that that was all we found, all of these ETFs simply by Googling the megatrend with an ETF after it climate. ATF, robotics, increasing automation, ATF. So like all that, that information is there. The question then becomes, how do you actually navigate what the right investment opportunity is? That's a question for another episode. Yes, but I think what we really just want to get across here is when you read about these megatrends, first of all, ask yourself, is this actually a megatrend? But then the actual job, the actual work of finding your investment opportunities these days is no more difficult than a Google search. 

Bryce: [00:16:01] That's it. So keep an eye and an ear on the news. There'll be plenty of investment opportunities popping up if you just stay in tune with what's going on. Speaking of staying in tune, we do have a daily a three time a week news podcast, The Dive. So if you're interested in bigger news stories and how those can turn into investment opportunities, make sure you check it out. Monday, Wednesday and Friday we show you the exciting world of business. Ren It's been great to chat and we'll pick it up next week. 

Alec: [00:16:30] Sounds good.