Thematic investment has skyrocketed in the past few years, performing really well in the first half of 2021 despite changes in consumer behavior brought about by the pandemic. Themes like big data, climate change and demographics will play a big role in the post-COVID world. Here are three themes that could be winners in the second half of 2021 —
Work-from-home was one of the top thematic investment areas in 2020. It has inspired and pushed several businesses to digitalize their existing system and update technology. As the pandemic woes ease, more and more people will be returning to offices, but cloud computing & artificial intelligence (AI) still has immense room to grow.
The pandemic had no doubt accelerated migration to the cloud in order to support people working remotely, but even after this, cloud’s efficiency, agility and security will continue to be the reason behind its boom. Businesses with on-premises data storage commonly go through multiple physical security layers but cloud eases these hassles. A multi-factor authentication (MFA) can enable automated authentication decisions for select users and works much faster than the traditional system.
Those looking forward to optimizing business operations, boosting profitability and driving innovation should also adopt AI. In fact, AI and automation are solutions that can perform repetitive jobs at scale and also adapt to changing situations by learning things voluntarily. It adds value to business workflows and harnesses the power of human resource and machine to improve customer experience.
In the second half of this year, infrastructure will also be a buzzing theme, thanks to President Joe Biden’s massive plans to develop the country. This nearly $1 trillion worth plan will be used to create millions of jobs through infrastructure spending.
So far, we know, nearly $312 billion will be assigned for transportation, of which $109 billion will be invested in roads, bridges and other major projects, while $66 billion in passenger and freight rail and $49 billion in public transit. The bipartisan group has approved plans to put $266 billion into non-transportation infrastructure, which includes $73 billion in power, $65 billion in broadband and $55 billion in water. Hence, companies engaged in 5G rollout and those utility companies planning to change to alternative energy stand in a good spot.
Last and a constant well-performing theme in the past few years is Clean Technology. The rapid climate change has created a rush toward adoption of cleaner and greener technology, and governments are investing millions of dollars into research and development of sustainable technologies. Clean power generation, smart agriculture and building retrofits have been areas of focus for the Biden administration. Tech bigwigs like Google has set goals to become carbon neutral by 2030 while Amazon has set up a $2-billion fund to invest in climate initiatives.
4 Top Fund Picks
Thematic investment gives an opportunity to capitalize on emerging trends. Thus, we have selected four funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and have significant exposure to Cloud Computing & AI, Infrastructure and Clean Technology. These funds also have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Utilities Portfolio FSUTX aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies primarily engaged in the utilities industry and companies generating most of their revenues from utility operations.
This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, FSUTX has returned 9.6% and 10.3% in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSUTX has an annual expense ratio of 0.76%, which is below the category average of 0.98%.
Fidelity Select Technology Portfolio FSPTX fund aims for capital appreciation. It invests primarily in equity securities, especially common stocks of companies that are engaged in offering, using, or developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements.
This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. Specifically, this non-diversified has returned 27.9% and 31.1% in the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSPTX has an annual expense ratio of 0.69% versus the category average of 1.04%.
Franklin DynaTech Fund Class A FKDNX aims for capital appreciation. The fund invests in common stocks of companies that its manager believes are leaders in innovation, have superior management, and benefit from new industry conditions in a dynamically changing global economy.
This Zacks sector – Tech fund has a history of positive total returns for more than 10 years. Specifically, FKDNX has three and five-year annualized return of 25.5% and 26.5%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FKDNX has an annual expense ratio of 0.85%, which is below the category average of 0.99%.
New Alternatives Fund Class A NALFX seeks long-term capital growth with income as its secondary objective. It primarily invests in common stocks of companies and even in other equity securities such as real estate investment trusts and American Depository Receipts.
This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, NALFX has a three and five-year returns of 29.4% and 20.8%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
NALFX has an annual expense ratio of 0.96% compared to the category average of 1.26%.
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