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VistaShares delivers innovative Liquid Alternative investment solutions for today's investors. VistaShares ETFs are actively managed by industry and investment experts, offering a number of distinct strategies. Supercycle® Growth Equity ETFs seek exposure to technology-driven economic Supercycles® that the adviser believes may offer long-term growth potential. Target 15® option-income ETFs seek to generate monthly income while complementing a core equity portfolio. Income is not guaranteed and will vary, and the Target 15® name refers to the strategy's objective rather than a guaranteed or promised return. Investing involves risk, including possible loss of principal. There is no guarantee that any investment objective will be achieved, and past performance does not guarantee future results.

What the mail from here is about

Mail from this address is about thematic investing: funds built around a long-run change rather than an industry or a region. Space, robotics, defence and power are examples, each a structural shift that cuts across the usual sector lines and draws in companies that would otherwise never sit in the same portfolio. The idea behind a trend is often easy to state. Turning it into a list of holdings is where the real decisions are made.

The writing here stays with those decisions: how a trend is defined, which companies make the cut, how they are weighted, and how a fund built that way behaves next to the broad holdings a client already owns.

Most of the useful answers about a thematic fund are in its rules rather than its name, and that is where these notes spend their time.

What makes something a trend

A trend is a structural change expected to play out over many years and across several industries. It is different from a sector, which groups companies by what they make, and from a style, which groups them by traits such as size or value. A trend groups companies by the change they are exposed to, which means a single trend can include manufacturers, software firms, service providers and utilities.

Space is one example. It covers companies that launch rockets, build and operate satellites, make the components that go into them, and provide the ground equipment and data services that make them useful. Many of those companies also sell to other industries, and space may be a small part of their business or the whole of it.

Robotics and automation cover industrial robots, the motors, sensors and controls inside them, the software that runs them, and the companies adopting them to make factories and warehouses run with fewer people. Defence covers the firms that build aircraft, ships, vehicles, munitions, electronics and the systems that connect them, a business shaped by government budgets and long procurement cycles.

Power covers generation, transmission, storage and the equipment that ties them together, at a time when demand for electricity is growing in places where it had been flat for years.

Each of these is a reasonable description of a real change. None of them comes with a ready-made list of holdings, and the list is where a thematic fund is really decided.

A trend also has a lifecycle. Early on, few companies are purely exposed and those that are tend to be small and speculative. As the trend matures, revenues grow, larger companies move in, and the list of holdings becomes broader and steadier. Later still, the trend may simply become part of the ordinary economy, at which point it is hard to tell apart from the sectors it once cut across.

Where a trend sits in that lifecycle changes what a fund built on it is likely to hold and how it is likely to behave. A young trend is carried by a handful of companies whose results can swing widely. A mature one is carried by established firms whose results look more like the wider market.

Most trends also attract attention in waves, with periods of enthusiasm and periods of neglect that have more to do with sentiment than with the underlying change. Those waves can move the prices of thematic funds a great deal without saying much about whether the long-run story is on track.

Trends also overlap with each other. Power is an input to almost every other trend, robotics borrows from the same component makers as defence, and space depends on both. A client holding several thematic funds may find the same companies appearing in more than one of them.

That is why the first useful question about any thematic fund is not whether the trend is real, but how the fund has turned it into a list, and what it had to decide to get there.

It also helps to separate the trend from the companies. A trend can be entirely real while the companies chosen to represent it are poorly placed to benefit, and the reverse can happen too.

Purity, breadth and the trade-off between them

Every thematic fund makes a choice between purity and breadth. A pure fund holds only companies that earn most of their revenue from the trend. It captures the trend closely, but the companies tend to be smaller, younger and more volatile, and there may be only a few dozen of them. A broad fund includes large companies for whom the trend is one business among many. It is easier to trade and steadier, but much of what it holds would be in a core index fund anyway.

Neither choice is wrong. A pure fund answers the question of how to own the trend itself. A broad fund answers the question of how to tilt a portfolio towards it. The danger is buying one while expecting the other: a pure fund can be far more volatile than expected, and a broad fund can turn out to be a more expensive version of the market.

Space and robotics are trends where the choice is stark, because many of the companies that are purely exposed are small. Defence and power have more large, established firms with heavy exposure, so a fund can be fairly pure without being as concentrated in small companies.

The holdings list and the revenue exposure figures that many index providers publish show where on that spectrum a fund sits.

Knowing where it sits makes it much easier to judge how the fund is likely to behave beside everything else a client owns.

Overlap is the practical test of where a fund sits. Comparing its holdings with a broad index shows how much of it is already owned elsewhere, and how much is genuinely new exposure. For a broad thematic fund, that overlap can be large enough that most of what a client is paying for is a different weighting of companies they already hold.

For a pure fund the overlap is usually small, but the liquidity of the holdings becomes the question instead. Smaller companies can be harder to trade in volume, and in stressed markets the fund's price can move further from the value of its holdings than it would for a fund of large companies.

Many investors end up somewhere in between, holding a fund that mixes a core of established companies with a smaller allocation to purer, younger ones. Knowing roughly what that mix is helps set expectations for how the fund will behave in both strong and weak markets.

Neither end of the spectrum is wrong. The useful thing is to know which end a fund is on, and to make sure that matches what the position is meant to do in the portfolio.

Where a fund sits can also drift over time, as companies grow, merge or change what they sell, so it is worth checking again at each review rather than once at the start.

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