Thematic funds, characterized by their targeted investment in specific sectors or themes, have garnered significant interest from investors, particularly during market upswings. As we approach 2024, the outlook for these funds remains a topic of keen interest in the investment community. Let’s explore the factors influencing their attractiveness in the coming year, drawing insights from various expert analyses.
Thematic Funds: A Snapshot of Recent Performance
- Historical Growth: Between October 2022 and October 2023, the assets under management (AUM) of sectoral/thematic funds surged by 30%, reaching ₹2.18 lakh crore. This growth highlights the strong interest in sectoral/thematic funds, with investors seeking to outperform the market by focusing on specific sectors like PSU companies.
- Performance in Different Sectors: In 2023, thematic funds targeting the PSU sector yielded returns of almost 54%, while infrastructure funds and technology funds showed impressive returns of around 40% and over 27%, respectively. However, the banking sector underperformed in comparison, with returns of around 18%.
Projected Trends for 2024
- Banking, Capital Goods, and Infrastructure: Experts anticipate that banking, capital goods, and infrastructure funds should continue to perform well in 2024. This projection aligns with the typical trend of investors leaning towards thematic investing during market upswings.
- Potential Risk: Thematic funds, being focused on a few themes or sectors, are considered riskier than diversified funds. They require active decision-making from investors regarding which sectors or themes to focus on. As markets have shown strong performance for a prolonged period, adding thematic funds to a portfolio at this stage might introduce higher levels of risk.
Specific Themes in Focus for 2024
- Artificial Intelligence (AI): AI is expected to take a central role in 2024, transitioning from concept to commercialization. The AI value chain, including semiconductors and technology developers, presents targeted investment opportunities.
- Medical Innovation: With the aging US population, there’s an anticipated inflection point in demographics. This shift creates investment opportunities in innovative healthcare sectors, such as neuroscience and biotech, which currently have reasonable valuations.
- Globalization Rewiring: Geopolitical fragmentation and the reorientation of supply chains are expected to create winners and losers in emerging markets. Specific countries, like Mexico and India, might benefit from these changes, providing investment opportunities in these regions.
Conclusion and Investment Strategy
The thematic funds outlook for 2024 suggests a mix of continuity and change. Sectors like banking, capital goods, and infrastructure are expected to maintain their momentum, while new opportunities may arise in AI and medical innovation due to structural market shifts.
However, the inherently higher risk associated with thematic funds, particularly in a potentially volatile and uncertain market environment, necessitates careful and informed decision-making by investors. The success of thematic funds in 2024 will likely depend on the ability of investors to identify and capitalize on these emerging trends while managing the associated risks.