Ollie
Smith:
Now,
it’s
Thematics
Week
on
Morningstar.co.uk.
So
who
better
to
grab
and
get
in
the
Morningstar
studio
than
Kenneth
Lamont,
our
senior
analyst
for
passive
strategies
to
talk
about
some
topical
thematics
questions.
Kenneth,
thanks
for
joining
me.
First
things
first,
where
have
thematics
done
well
and
where
have
they
done
badly?
What’s
hot?
What’s
not?
KL:
I
think
before
we
jump
into
specifics,
it’s
worth
framing
that
question
in
a
way
that
there
are
some
general
traits
that
almost
all
passive
funds
have.
And
one
of
these
is
they
tend
to
have
a
growth
bias.
It
just
makes
sense.
You’re
trying
to
capture
some
sort
of
future
growth.
So
these
funds
tend
to
do
well
as
a
cohort.
They
sort
of
move
with
the
fortunes
of
growth
stocks
in
general,
which
has
seen
them
perform
particularly
well
in
periods
like
the
post-Covid
recovery.
It’s
really
knocked
it
out
of
the
park.
I
mean,
big
numbers.
But
then
equally,
they
suffered
some
of
the
worst
returns
in
that
sort
of
tech
reckoning
that
came
afterwards,
couple
of
barren
years
for
thematics.
So
with
that
in
mind,
it
won’t
surprise
any
of
your
viewers
that
the
most
successful,
the
theme
of
the
highest
returns
in
2023
was
AI
and
big
data.
It
was
the
year
that
AI
went
pop,
let’s
say,
in
a
good
way.
It
won’t
be
a
surprise
to
anyone,
but
it’s
interesting.
One
of
the
fascinating
things
about
thematics
is
that
you
can
really
see
trends
play
out
in
real
time
sort
of
in
front
of
you.
So
AI
was
really
the
big
winner
of
the
year.
The
big
loser
may
surprise
some
people.
This
was
battery
technology.
This
was
sort
of
the
battery
stocks
really,
really
suffered
with
the
falling
demand
from
China
and
sort
of
oversupply
of
some
of
the
core
inputs
to
battery
technology,
such
as
lithium.
OS:
Okay.
And
just
in
terms
of
risk,
because
I
think
that’s
the
sort
of
optimist
case
on
the
one
hand
for
some
really
exciting
trends
playing
out
in
real
time,
as
you
say.
Our
understanding
of
risk
is
evolving
in
real
time
too.
So
what
do
investors
need
to
know
about
the
risk
of
investing
in
thematics
right
now?
KL:
Well,
for
a
start,
many,
if
not
all,
thematic
funds
are
risky
by
design.
They’re
designed
to
target
very
specific
risk
and
return
drivers.
And
that
means
they’re
often
highly
concentrated
baskets
of
stocks
and
therefore
highly
volatile.
And
every
investor
in
thematics
must
really
understand
that
before
they
invest.
For
example,
I
just
talked
about
battery
technology
really
suffering
last
year,
but
in
2020
it
was
the
best
performing
theme
that
we
track,
returning
almost
90%
that
year,
over
90%
that
year
is
the
theme
average
that
we
calculate.
So
clearly
these
are
very,
very
volatile,
but
also
there’s
specifically
there
are
elements
of
risk
when
it
comes
to
thematics
that
you
need
to
consider
over
and
above
just
looking
at
historical
volatility
as
well.
And
we
talked
about
AI
and
actually
one
of
the
biggest
risks
to
the
growth
of
AI,
the
profitability
of
AI
is
regulation
and
this
is
something
that
hasn’t
happened
and
it’s
very
difficult
to
really
price
incorrectly
and
no
one
really
knows,
but
this
is
a
sort
of
a
bus
coming
through
the
tunnel
in
the
other
direction
and
we
don’t
know
how
that’s
going
to
play
out.
So
looking
backwards
isn’t
going
to
tell
us
much
about
how
that’s
going
to
impact
the
future
profitability
of
AI.
OS:
So
some
uncertainty
there.
Just
quickly
and
finally
then,
I
mean,
do
you
think
this
is
still
an
optimist
game?
I
mean,
I
think
a
lot
of
people
would
invest
in
thematics
because
they’d
be
excited
about
the
future
and
in
particular
solutions
to
the
world’s
big
problems,
but
there
are
some
reasons
to
be
cautious.
On
balance,
are
you
still
an
optimist
about
thematics
or
are
you
a
little
bit
more
measured
than
you
were?
KL:
No,
I
actually
think
that
these
last
couple
of
years,
despite
the
poor
performance
of
thematics,
have
actually
validated
it
as
a
legitimate
lens
through
which
to
view
investments.
If
you
look
at
what’s
been
animating
global
markets
over
the
last
sort
of
18
months,
it
hasn’t
been
geography,
it
hasn’t
been
sector,
it’s
been
AI
and
that’s
a
theme.
And
one
of
the
really
positive
things
I
would
argue
is
that
we’ve
seen
the
clear
growth
in
society,
the
enthusiasm
for
this,
and
it’s
actually
played
through
into
the
performance
of
the
funds
that
say
they’re
tracking
that
theme,
which
shows,
which
sort
of
validates
the
purpose
of
that
theme.
So,
I
think
actually,
despite
the
poor
performance,
this
has
actually
been
a
very
positive
couple
of
years
for
thematic
investing
via
funds.
OS:
Sure,
some
transparency,
perhaps.
Kenneth,
thanks
so
much.
For
more
on
thematics,
check
out
Morningstar.co.uk
throughout
this
week
where
we’ll
be
publishing
content
on
thematic
investing
in
conjunction
with
our
other
European
websites.
Until
next
time,
my
thanks
again
to
Kenneth.
I’ve
been
Ollie
Smith
from
Morningstar.
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