- 7 weeks ago
Capturing multiyear structural changes that are evolving right around us.
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00:00Hey folks, welcome to The Street's Stocks and Markets Podcast. I'm Chris Versace, Portfolio
00:07Manager of The Street Pro Portfolio. Today's podcast is going to leverage a conversation
00:12I had with Jason Meschnick, Managing Editor of The Street Pro, in which he asked me about
00:17thematic investing, what it is, how we use it running The Street Pro Portfolio, and why
00:23we share so many signals that we do with pro portfolio members. Now, if you're a pro member,
00:29you no doubt see these signals when we publish them on Saturday mornings. And if you're not,
00:35you may want to see what we're up to and how it can help you become a smarter investor.
00:45I'll give you a little bit of background. One of the reasons why I'm excited about today is that
00:48back when I was working in fintech and I worked with all the major brokers, Schwab and TD Ameritrade,
00:54et cetera, there were a couple of years where everybody, all that they would ask about was
00:58thematic investing, saying that thematic investing is the number one thing that everybody is going to
01:03be interested in down the road. People understand it. They like the stories, et cetera. But the thing
01:08is, none of them really understood what thematic investing was. So we are lucky because not only
01:14do we get to work with Chris Versace on a daily basis and have his expertise in managing the Street
01:20Pro Portfolio, we also get his expertise around thematic investing. And Chris is arguably one of the,
01:27one of the major experts in the world, I'll say the world on thematic investing. So as I mentioned,
01:35Chris is our, he manages the Street Pro Portfolio and it's one of our big offerings on the street.
01:43But with that, I'd like to turn it over to Chris to start talking about thematic investing.
01:48Thank you, Jason. Hey, let me, let me just add to something that you said before. I mean,
01:52you are right. There's been a lot of talk over the last, you know, several years about what is
01:58thematic investing? How is it done? And I think we've seen a lot of false starts. You also just
02:04mentioned Schwab. And it is interesting that they do have a list of thematic strategies. One of them,
02:10I don't have to admit, I understand. Caffeinated beverages, how that is a thematic strategy,
02:17I don't know. But I think when we're done, Jason, you and folks who are watching will probably be
02:23asking the same question. How is caffeinated beverages a thematic strategy? So what do you
02:28say we get started? I don't know how caffeinated beverages is a thematic strategy, but I can tell
02:33you that it is high energy. Oh, boy. Okay. All right. What do you say we get started? Let's get
02:40started. I'll go on mute now. Okay. All right. Thank you very much. So welcome, everyone. I'm Chris
02:50Versace. I manage the street pro portfolio. I also do some stuff with thematic research. In there,
02:57we use thematic investing as well to power a variety of different models, but also with some
03:05of our partners over in Europe that are offering ETFs based on the thematic indices that we have created.
03:13You know, I really like thematic investing. And as you'll see, as we go through this, that
03:20not only is it recognizable, relatable, but it really helps define something that I think is very
03:26important when we talk about investing. It's getting around to the question of why. Why are we
03:33interested in this particular ETF? Why are we interested in this particular model? Or as we
03:39use it, the street pro portfolio, why are we interested in this particular stock? So with that,
03:47let's get started with the slides. Maestro, we can have the next one, please.
03:52Awesome. So this is thematic investing 101. And just like a regular college class, 101 means
04:02that this is kind of a primer on what thematic investing is. Will we get into some of the nitty
04:08gritty on how we see thematic investing? Yes, we will. Will it be a soup to nuts presentation? In other
04:15words, will you be a thematic expert when we're done? Maybe, maybe, but you might have more questions.
04:22And of course, we'll be happy to answer those either in the Q&A session, or if you're a member
04:29of the street pro portfolio, you know, we have office hours every Tuesdays and serving certain
04:34times of the year on Thursdays as well. And we, of course, love to entertain questions
04:39during those periods. With that, next slide, please.
04:44So one of the big questions I think that a lot of investors ask, especially newer investors,
04:51is how do you get started as an investor? There's a lot of information out there. There's a lot of
04:57different companies out there. There's a lot of talking heads. How do you get started? Well,
05:04whenever someone gets started, I always think they're staring at this next slide.
05:13As you can see, there's a lot of different things that are going on, you know, day to day,
05:18week to week, month to month, whether it's about the latest technology, whether it's the most recent
05:25economic data, like we got the October CPI this morning, whether the Federal Reserve is doing
05:31something like we saw last week, where they cut interest rates by 25 basis points. All in all,
05:36it is a tremendous amount of information that as an investor, you have to parse, you have to
05:43make heads or tails of it. And the risk here is something that in the business they call analysis
05:51paralysis. You're simply too overcome with the information that you're just not sure what to do.
05:57Next slide, please. And when we take a look at the S&P and how it's constructed, you know,
06:05it breaks down 500 or so stocks really into 11 categories, technology, financials, consumer
06:13cyclicals, consumer defense, communication services, industrials, healthcare, real estate,
06:18energy, utilities, and basic materials. But what I find kind of troubling with this is that
06:26not all technology companies are the same. There are software, hardware, for example.
06:31In the financials, are we talking companies that are more tied to investment banking or to commercial
06:37lending? Over in, you know, consumer defense, a wide variety of companies, nowhere near all the same.
06:43And even in industrials, are we talking about ag equipment, construction equipment,
06:49related to housing, you know, just so many different things. And then of course, in real
06:53estate, a wide array of different type of investment strategies housed in there. So
06:59when we look at these 11 baskets, I would argue that they're more catch all and that, you know,
07:05it's very hard for the individual investor, especially a new one, to really crack the code
07:12of what's going on here and trying to figure out where to get started. Next slide, please.
07:19So with that, we think back on the last two slides, the big question is, how do you put the puzzle pieces
07:27together? Sometimes you could be standing around, not sure of what to do, as I said. Other times,
07:32because of the way you're looking at the market, the industry, a particular company, you might have
07:37a very clear cut picture. And that allows you to assemble the pieces together into a nice image
07:44that hopefully gives you some direction. Next slide, please. But here's the thing. And I think this is
07:51probably what's most important. And this is what turned me on the most of thematic investing almost,
07:57dare I say, 20 years ago. You know, back around 20 years ago, I was an equity research analyst
08:05covering my universe of stocks. It was really the mobile phone, mobile phone companies and the
08:13underlying food chain. So everything at the time from research in motion or Blackberry and Nokia,
08:20Motorola, because they were still in the phone business back then, to the key component suppliers
08:24and their suppliers. And it was great because I was able to use information up and down the chain or
08:31the food chain. But I did notice that the clients that we were talking with on the institutional side,
08:40that a lot of the portfolio managers, as you can see on this chart here, still had a very tough time
08:46outperforming the market. And I thought about it for a long time. And on the next slide, there's this quote
08:54from Warren Buffett that I think really hammers it home. You need to divorce your mind from the crowd.
09:01The herd mentality causes all these IQs to become paralyzed. As you think about that,
09:09the next logical thought that you're likely to have is on the next slide.
09:15Only by thinking differently from the herd can you truly aim to outperform. So if the vast majority of folks
09:23are kind of thinking from an S&P sector perspective, it becomes very difficult to outperform the market
09:31and your peers if you're all doing the same thing. Next slide, please. So this brings us to the real
09:40question of what is thematic investing? And now I can say with that primer out of the way, let's begin.
09:47Next slide, please. As we begin, you heard me joke a minute ago about caffeinated beverages being a
09:57relatively poor thematic. It is true, as Jason alluded to, that at one point, thematic investing
10:04was the thought to be the new, new thing. And, you know, kind of like any new, new thing that arrives,
10:10a lot of folks really try to ride in and take advantage of that, capitalize on that so they can,
10:18you know, build a business or gather assets, call it what you will. And that gives rise to a lot of
10:25shoddy thematics. Some examples in here, you know, marijuana, water. Interesting story back,
10:33I guess about 10, 12 years ago when we were first at thematic getting into indexing, went to the
10:39inside ETF conference, spoke with some folks. One of them was an ETF issuer and I just asked the
10:46question, do you have any thematic ETFs? And the person was like, yes, we have water, we have wood.
10:53And I, you know, quickly realized that they did not really understand the true power of thematics.
10:59Um, so let's, let's move on to the next slide and actually start talking about how we see thematics.
11:06Um, you know, this is a very high level, uh, description, but what we like to do is identify
11:12pain points and structural changes that are arising from the intersection of several powerful forces.
11:19And by those, I mean, those are the changing landscapes of the economy, economy,
11:23demographics, which are a very, very powerful medium to long-term, uh, driver of, of, of things,
11:31psychographics. This is really focusing in on the consumer, of course, technology and all the
11:36disruption that it may or may not bring, uh, public policy and stimulus spending. It's by amalgamating
11:45these together and looking for companies that are poised to benefit from structural changes that we start
11:51to really harness the true power of thematics. Next slide, please. Now, why pain points?
11:59Well, you know, folks over at the StreetPro portfolio know I talk about pain points quite a bit
12:04because pain points tend to cry out at some point for a natural solution to be had.
12:11So just like Jay Samet says here, problems are just business are just businesses waiting for the
12:16right entrepreneur to unlock their value. And of course, as Peter Drucker famously said,
12:22if you want something new, you have to do something. You have to stop doing something old,
12:27which kind of fits to what I was saying earlier about if you want to outperform the herd,
12:32you can't do what the herd does. You have to think differently. Next slide, please.
12:38So what is a theme? Well, we view a theme as, you know, really reflecting pronounced,
12:47and this is important, multi-year catalysts that are driving structural changes across the economic
12:52landscape, cutting across sectors and delivering alpha. So let me, let me take a moment here.
12:59Multi-year. Well, you know, a trend tends to be very short term. We're looking for, um, structural change.
13:07Structural change takes time to unfold. It usually doesn't happen in a year. Sometimes it doesn't
13:12happen in two. It tends to be, again, a multi-year process. As an investor, watching the start of that
13:21multi-year structural change and riding that through its, uh, multi-year process is simply,
13:27simply wonderful. That's something that we've been able to do over the StreetPro portfolio.
13:32Um, you know, one case in point is with the Biden infrastructure, uh, spending stimulus packages out
13:40of Washington. Uh, we've got, we've had names, we continue to have names in the portfolio that are
13:45extremely well positioned to capitalize on that. Um, in terms of cutting across sectors, back when I was on
13:53the sell side, as I alluded to a little while ago, covering mobile, you could see how the adoption of
14:01mobile was not just simply in smartphones, but how it was literally changing the way businesses worked,
14:09how people, um, stayed in touch, how they did what they did, whether it was banking or communicating.
14:17Um, there was just a whole structural change around the mobile world. And as we talk about in the next
14:23couple of slides, how thematic investing done right, as I like to say, can deliver alpha. And with that,
14:31um, this is kind of the cheat sheet, if you will, if we've developed our thematic strategies correctly,
14:37and we'll talk on that more in a second, we will have identified these powerful multi-year structural
14:43changes. And by identifying the companies that are best positioned, and I'll talk about that in a
14:49moment as well. Uh, you can, you can see how those tailwinds, as I like to say, will push on their
14:55businesses, driving revenue, profit, and cashflow growth. Uh, when we think about that, when we have,
15:02you know, earnings expansion, we tend to get multiple expansion as well. That one, two tends to deliver
15:10alpha. And the same is true for companies that are paying dividends. You know, as their revenue
15:16continues to grow, their profits grow and their cashflow, it grows as well. We tend to see them
15:21continue to raise their dividend. So this, when done right, is a very powerful matrix, in my opinion.
15:31Next slide, please. Okay. Now I kind of talked about what thematic investing is, but let's talk about
15:39what it's not. And this first one here speaks to what I was saying before. It is not short-term
15:45focused. It is evolutionary, not revolutionary, but that means that, you know, sometimes when you
15:52like to do a back test of a particular strategy, particularly for an ETF or a model, it may not,
15:59you may not be able to go back far enough, five years, 10 years, because of, again, of the shifting
16:05landscapes, these structural changes that are emerging. Um, niche or a trend, exactly not what
16:12thematic investing is. Uh, is it a micro sector meeting a handful of stocks? No. Um, and in order
16:20to really qualify as a true thematic, it has to be somewhat, uh, widespread. What I mean by that
16:28is that it, um, there has to be enough companies kind of in the basket of potentially affected
16:37tailwinds to really qualify as a theme. And then the last one, marketing vehicles,
16:44that's just kind of fluff. Uh, you know, to me, that's exactly where that caffeinated beverages
16:50example that I used falls in. Next slide, please. So what are the benefits to thematic investing done,
16:57right? Well, it's a fantastic top-down, uh, assessment of what's going on. How do we get started? How do we
17:05identify the why? Um, it is also global in scale. Um, you know, these thematic drivers are not,
17:14you know, necessarily driven solely in the United States. There might be certain ones that are,
17:19like I mentioned, the Biden infrastructure stimulus plan, but when we look around at the
17:23demographics, whether it's China, Japan, or the U S certainly aging of the population, uh, is a global
17:30phenomenon. When we think about the digital infrastructure moving from 2G to 3G to 4G and now
17:375G, uh, certainly, uh, that is a global phenomenon. When we think about the expanding use of data, uh,
17:46whether it's because of AI, whether it's because of social media adoption, mobile data usage, um,
17:54or some other factors, you know, that is a global phenomenon. When we think about cybersecurity,
18:00I think, I think you get the message global phenomena. Um, probably one of the great things
18:07about it is that there's no shortage of signals out there. Um, whether you're, you know, listening
18:12to companies talk about how they're describing their businesses, you can usually pick up some indication
18:17of what they're talking about. And the key is that, and probably most important is that thematic
18:24investing when done right should be recognizable and relatable to the average person because it's
18:30unfolding around you in your daily lives. And I'll have a great example on that in one second.
18:36Um, what are some of the risks? Well, not every theme is going to work all the time. Uh, a great example
18:44is the luxury luxury buying boom investment theme that we have, which really focused on, um, luxury,
18:51uh, consumers buying luxury goods. And as we look over the last year, that theme has really been
18:56out of vogue. Uh, but there are themes that can kind of crop up when you least expect them, uh,
19:02nuclear energy or nuclear energy and uranium, given what we're seeing about the electric electricity
19:08pain point. Uh, there's been a lot of talk about that. And that is, as we saw this morning,
19:13uh, with the Biden administration looking to triple the amount of us nuclear capacity by 2050,
19:20that is a multi-year structural change. Um, you know, very, very easy to identify and talk about.
19:29Um, two other risks, a lack of investable, investable opportunities. This is kind of what I was
19:35alluding to earlier. If there are not enough companies capitalizing on this,
19:41um, it may not be a theme. Uh, and then finally the inability to deliver alpha. Um,
19:48if you can't really harness this, um, properly, it probably means that your theme is not well
19:54constructed. Um, one other thing that I will say, uh, about the, about thematic investing when done,
20:01right. So far, you've heard me talk about companies that are well positioned. Well,
20:07the flip side of that is true. If a company is not responding to the structural changes around it,
20:14that's an early indicator that it's likely likely to be left behind. And as an investor,
20:20those are not the types of stocks that we're looking for. Next slide.
20:26So a second ago, I mentioned that there's a lot of signals. Well, one of the things that we, we publish
20:31here over at, uh, the street pro portfolio is, uh, what we call signals. This goes out, uh, most
20:38Saturdays. They're literally, um, ripped from the headlines, uh, stories where we take a little bit
20:45of an excerpt and then we link to the larger story. Um, and it just shows how the strategies that we're
20:51talking about, the themes are just, again, happening and unfolding in and around us, uh, in our daily
21:00lives. And then this particular example, you can see artificial intelligence, artificial intelligence,
21:04data privacy, artificial intelligence, digital infrastructure, the cash trap consumer digital
21:10infrastructure. And this, this actually drives home a very powerful point as well. What happens
21:18if we see an intersection of one or more themes? Well, um, that becomes a very powerful force because
21:29you have the power of multiple structural changes, powering, uh, the companies that sit at the
21:36intersection of those two themes. So, you know, simply put, if you like one theme, you gotta love
21:41it when two themes come, come together. And at certain times you can even see three come together.
21:47So extremely powerful, um, forces pushing on a company's, uh, revenues, earnings, cashflow,
21:54and the like. And I really like this. Um, that's why I shared it, uh, with the subscribers over at
21:59the pro portfolio. Um, like I said, most Saturdays, it, it just really brings us another perspective and
22:05a whole lot of other confirming data points. And obviously the more confirmation we have,
22:10the more, um, confident we can be about the decisions we're making. Next slide.
22:15So just to kind of recap thematics, structural changes, you know, multi-year tailwinds, pushing
22:24on revenue, profit, cashflow, driving multiple expansion, dividend growth. That is thematic
22:30investing done right. But once you have the right theme, there is still more work to be done. Next slide.
22:40Remember what I said before that you want to identify companies that are well positioned.
22:45Well, the reality is that, you know, from time to time, folks have a preconceived notion over what
22:51a company does, and that may not be what it really does, or it may not be what's really powering
22:59their business. Um, I'll give you, you know, two examples. Uh, one is Amazon. Amazon at one point
23:06or another has touched a lot of different areas. Uh, a lot of folks are, you know, no Amazon in their
23:11day-to-day lives because of all the packages that line up outside their homes. Well, makes sense.
23:17But when you look in breakdown Amazon, you quickly realize that the bulk of its profits are not
23:22generated by the North American or the international retailing business. It's generated by Amazon web
23:28services. So from a thematic perspective, we really want to focus in on that part of the business.
23:34Another example, um, is, uh, Broadcom, um, which a lot of folks are thinking about now, I'm sorry,
23:42Broadcom Avago, which a lot of folks are now thinking about as a cybersecurity player, even Cisco as a
23:47cybersecurity play. And while they have exposure to those businesses, when you take a look at how they
23:54generate their profits, uh, those are not the largest drivers by any stretch of the imagination.
24:00So what this led us, uh, to develop is this thematic scorecard. So when we're thinking about
24:07a theme, the question we ask ourselves is how much of this company's sales, how much of this company's
24:13profits are derived from what's driving that particular thematic tailwind. And, you know,
24:21it's easy to quantify because you can, you know, take a look as you can see, uh, on the slide here,
24:26you can take a look at company presentations, uh, company conference call comments, or other filings
24:32that they have with the SEC, 10 Ks, 10 Qs, and you can break down their business. And as we do that,
24:38we try to score, as you can see with the scorecard and rank score there, what is their level of exposure
24:44to the strategy? Um, in a perfect world, you really want companies that have, you know, at least 90%
24:51of their sales or operating profit tied to the strategy. And the reason I say sales or operating
24:58profit is because of the following. When you look at a company's business, sometimes they just give
25:03you enough segment information, um, to identify the right sales. Others might give you more information
25:09being a little more granular in what they show and their filings or how they talk about their business.
25:14So, um, preference would always be operating profit, but if the filings only show or the presentation
25:21only shows sales, we will work with that. So as you think about constructing, you know, themes and on
25:28the next couple of slides, we'll have some examples. Um, you really want to zero in on these companies
25:34with high thematic purity, because again, the stronger the tailwind, you know, the companies with
25:40greater exposure, they will see more pronounced, uh, drivers for their revenue, their profits,
25:46their cashflow than what I laid out on the following, on the, excuse me, previous slides.
25:51Next slide, please. So what are some of our thematic strategies? Well, I rattled off a few of them
25:57earlier, but aging of the population, capturing the demographic wave of the aging population and the
26:02changing demands that it brings on it. Um, that's not just financial stocks. There are some, the health,
26:10certain parts of healthcare can be in there, but also if we think about REITs and assisted living,
26:16you know, there's, there's a wide variety of areas in there, but also think of the demands
26:21of day-to-day life on, um, the older population. So you really have to kind of step back and take a 360
26:29look at how the aging of the population is, you know, uh, helping give rise to solutions for pain points
26:38being, uh, felt by the aging population. Um, artificial intelligence, the CHIPS Act is another one,
26:45given the, um, structural change and the stimulus spending that we saw, uh, emerge from the Biden
26:51administration, uh, cloud computing, consumer inflation fighters. You know, if we think about,
26:57um, over the last few years that we've had pronounced inflation and only recently did we see
27:03real wage growth return, but at the same time consumer, uh, credit card debt has just piled up.
27:11Um, it stands to reason and we've seen it that consumers look for ways to stretch their disposable
27:16spending dollars. Um, you know, examples like Amazon or Costco, both of which we own in the pro
27:22portfolio are some great examples of companies poised to benefit from that, but there are others as well.
27:27Uh, cyber security, you know, huge, uh, data privacy, digital identity, digital lifestyle. I alluded to
27:34that earlier with, with mobile, even though it is much more than that, uh, digital infrastructure and
27:39connectivity, uh, and digital payments. And there are others out there as well, luxury buying boom,
27:45rebuilding America, safety and security, which includes aspects of personal safety, uh, as well as, uh,
27:53defense spending, but public safety as well. So those are some of the, you know, you know,
27:58strategies that we've employed. And I think for folks who take a look at what we've done with
28:03the pro portfolio this year, you really see the benefits of, um, utilizing thematic investing and
28:11a number of these different strategies. Next slide. Now, what I just said about creating and
28:20understanding thematic themes, putting them to work, identifying companies with high thematic purity
28:26that works if you're, uh, you know, looking to invest in an ETF because some ETFs, I have to be
28:33honest, they have a lot of, uh, you know, filler in there, whether it's to drive liquidity or just to
28:38get enough names to, um, enable the structure to take hold. Usually you need about 22, 23, um, to do that.
28:46Uh, models are the same and of course stocks as well, but here's the thing at the end of the day,
28:55let's say that we have created a, um, very recognizable, relatable structural change and
29:03multi-year thematic tailwind. We have identified companies that are well positioned to capitalize
29:12on those structural changes or those pain points. That is the why. With the next slide, you'll see
29:21that even though we might have the why, you still have to do the fundamental analysis.
29:29In other words, you have to take stock, no pun intended, of what is driving the particular security
29:37or stock? How is it valued? Where, what is a favorable risk to reward entry point? You can
29:45even throw in a dash of technicals. Is it overbought? Is it oversold? No, all of that. Those are other
29:51factors that once you've created your themes and you identified the right companies, you have to ask
29:58yourself these questions because the fundamental work still has to be done. This is why I say
30:05that thematic investing is a great way to identify structural changes and potential alpha generators,
30:13but you still have to do the fundamental and technical work.
30:22All right, Chris. Um, so thank you for that. I have a few questions, a couple are mine, but also some,
30:27some subscriber questions. Uh, so why don't, I want to start with, with the most basic question. So when,
30:34when you were defining what a theme is and you talked about, um, about the 11 sectors, would you
30:41say that, uh, thematic investing is really just kind of modern day sectors with better?
30:45No, no. In fact, um, you know, truth be told, I hate that word sectors because structural changes
30:52can evolve across industries, right? So if we think about, you know, AI, for example, uh, first off,
30:59I would challenge you, what is the AI sector tech? Okay. But we are seeing all sorts of companies,
31:06uh, embrace AI. You know, it could be from used in advertising. It can be used inside technology,
31:12companies like meta and Google are doing, but it's also being deployed at, you know, other enterprises
31:19as well, outside of technology. So to me, um, that is a very, very dirty word. It's a very limiting word.
31:26Uh, I, I actually get very excited when I see the, um, theme kind of spilling over
31:34into other sectors because it tells you that it has legs.
31:37So, so along that line, one of the benefits of, um, of the universe of sectors is that we're able
31:45to measure diversification, um, in a thematic world, how do we go about, um, measuring diversification?
31:52That's a great question. Um, you know, what I would say that you want to do is just take a look
31:58at your holdings on your themes. Um, and you know, you can kind of see the overlap and that'll tell you
32:04really how diversified you are. I will tell you that with, uh, 20 models that we've developed
32:10over at Tematica. Um, I think that there's, if I remember the numbers, right, I think there's only
32:15one company that's in three and that is going to surprise you, Jason, you're probably going to go,
32:20oh, come on, Chris, it's gotta be Nvidia. And the answer is it's not, it's McDonald's.
32:25McDonald's. McDonald's, which is a little surprising, right? That would not have been
32:31what I would have guessed in, in any world. Yeah. Yes. An industrial or, uh, no, no, I, I,
32:37I was surprised as well, but it's, you know, it's really, um, but that, that's one of the powerful
32:44things though, right? Because it allows, it's, I didn't really call this out, but if you're looking
32:50for the real beneficiaries of the themes, they may not necessarily be the companies that you
32:55immediately think of, right? That was kind of the point I was trying to make with, uh,
33:00and talking about the thematic scorecard where people will might go, oh, you know,
33:04cash trap consumer retail Amazon. Well, yeah, but let's remember where the bulk of its profits are
33:10generated. And I, and I, I think if you, if people only take one thing away from this conversation,
33:16it would be to really understand the companies that you're doing your homework on, where do they
33:23really make their money, right? Understand, you know, the largest drivers of their sales,
33:29preferably the largest drivers of their operating profit. Um, whether you want to use thematic
33:34investing or not, that's going to help you really understand what's going to drive that business
33:39forward or drive that company forward, drive that stock forward. Yeah. A good example of that is when
33:45you look at a company like, um, like Ford, um, which has, would they make a significant amount
33:50of money short from selling cars, but they also make a lot of money from financing car sales.
33:54Correct. Well, the same thing is true with McDonald's and real estate.
33:58Okay. The real estate aspect. There we go. Um, okay. Let me wait. Um,
34:06okay. So let me ask one of the questions from a, from a subscriber. Um, what are some of the best
34:13themes for the Trump era? You know, now that we have, we're, we're learning a lot more about what,
34:18um, what's going to be the policies for the next four years. So as an investor, how do we take
34:23advantage of this from a thematic perspective? Well, I would say we don't know yet. We're,
34:27we're, we're, we're a week in, right? We're, we're only starting to hear people who were named. And,
34:33you know, I, I think the big question out there is we've heard a lot of bluster
34:36from candidate Trump. Now the question is as, as he assembles his cabinet, his advisors. Um,
34:45and yes, you know, it looks like they have the Senate and it looks like they'll likely get the
34:49house. The question becomes, you know, what, what was campaign promises? What is, what is the
34:55likelihood of being converted into real policy? As that becomes clear, then I think we'll be able
35:00to determine what happens. But having said that though, there are certain things that are not
35:06likely to slow down, uh, aging the population, for example, can't fight that, uh, digital infrastructure
35:13or electrical pain points, right? The, the, the continued growth in data content consumption
35:19creation is only going to accelerate as AI adoption unfolds. That's going to continue to pressure the
35:25digital infrastructure. So we will see more capital spending there. Um, you know,
35:30so I, I think that there's a number of different themes where it might get questionable would be,
35:36for example, in safety and security. Um, on the one hand, Trump is pushing NATO countries to take
35:43their defense spending as a percentage of GDP to two and a half percent from two, from the 2% target.
35:48That would be a big positive. But on the other hand, um, do we know what Elon Musk is going to do
35:55as he trims fat and what that might be to various parts of, you know, the government structure?
35:59Don't know. So, you know, there are a number of ones out there that I think that the,
36:05the structural tailwinds will continue. There might be some themes, as I, as I mentioned earlier,
36:10not all themes work all the time. So as new information becomes available, whether it's,
36:15you know, what the Trump administration puts forth, we always have to sit back and,
36:19and reassess the viability of, of a particular theme. You know, like I said earlier, our luxury buying
36:25boom theme worked three years ago, but over the last 18 months, not so much. And we, we understand
36:31the whys of that. If you take a look at the, you know, China's economy, um, which was really,
36:37if you think about luxury buying boom, um, you know, at one point, I believe China had the fastest
36:42growing number of millionaires, which kind of helps, helps explain that luxury adoption.
36:47Sure. Um, so we have, we have one question. It's not really related to thematic investing,
36:53so I'm going to change it a little bit. Um, it, it, it, it's tangential to what we were just
36:58talking about with the Trump presidency. Um, and, and, uh, in this case, tax loss selling,
37:03but this person is wondering about, um, the mag, well, they say the mag six, but the mag magnificent
37:08seven, and I'm going to ask it a slightly different way. Is the magnificent seven, uh, a theme?
37:16Uh, no, I would say not. I would say that they have, some of them have a variety of, um, tailwinds
37:25that they're writing, but you know, when you look at them, Apple at the heart of it is a smartphone
37:33company, right? Google at the heart of it, search and advertising. Yeah. They have Google cloud,
37:39but it's still a small part of their business. You know, Amazon, you know, in the cloud, uh,
37:43Microsoft different NVIDIA is a chip company. So they're all, you know, different, but you know
37:49what, if you were to take a look at various companies, you know, sometimes inside a theme,
37:54if it's constructed, you might have a nice array of diversified candidates that you have to do your
37:59homework on, right? That's the beauty of thematics. Whereas, you know, I think the issue with what I
38:07just laid out is also a problem with that technology sector, right? All those companies you just
38:13mentioned are technology, but they're all different aspects of technology. So again, you really have to
38:18get back to the why, which for me is thematic investing. Great. Um, okay. So I love your Saturday
38:26piece and I also love how you work, um, thematic investing into the pro portfolio. It really does
38:32help people understand the companies. It helps them understand, um, your investment thesis. Um, so,
38:38but a lot of people who are listening like to be self-directed and so they come to the street pro
38:44street pro to sort of outsource some of their research. Um, but when they're doing their own
38:49personal research, are there tools that you recommend, um, online or, or other ways besides digging into a 10k
38:56maybe some thematic lists or, or, um, or other tools that they can see themes or even ETF lists
39:04and things like that, that can help them do their own thematic portfolio generation.
39:09So I have a couple of thoughts on that. I mean, the first thing I would just say is, um, you know,
39:16this is true for, I guess, any investor, but especially true for someone who wants to
39:19kind of use the thematic lenses. I like to call it is really just pay attention to what's unfolding around
39:24you. See, you know, what are people gravitating towards? How are people changing what they're
39:29doing? Um, you know, read a tremendous amount. I mean, to, to come up with those signals, you know,
39:37there's, I think there were maybe half and half a dozen to a dozen. Um, but you know, you turn over
39:41things looking for data points and how do they fit into that lens. Um, but for the newer folks who
39:47want to get started, you know, we alluded to earlier, Jason, that Schwab has a list of thematics
39:52that are out there. You can, I'm certain, I know for a fact that you can Google thematic ETFs and
39:58you'll get a wide array of them. I would just say, if you do that, just be mindful of the strategy
40:04and really ask yourself, you know, some questions, you know, is, is there a multi-year structural tailwind
40:11at the heart of this, or is this something that's kind of kitschy? Um, you know, kind of like, uh,
40:17uh, baby, uh, B was it baby beanies or fidget spinners, right? Something that's here today,
40:23gone tomorrow. That's not really what we want. You don't want a short-term trend. You want something
40:28that has a multi-year runway that because it's unfolding around us, you can collect a lot of data
40:37points. So you can either, um, get a lot of confirmation for what you're doing or potentially
40:44signs that say, Hmm, you know what, this is slowing down, or maybe this theme is kind of played out.
40:52Awesome. Um, well, thank you. That's all the questions I have. And in the interest of time,
40:57I think we should probably wrap it up here. So I just want to say, um, thank you, Chris. Uh,
41:01this was really informative. This, uh, web webinar webcast will be available. We'll be saving it.
41:08I will probably, um, publish the transcript as well, maybe an article or two, and we'll see,
41:14we'll see what else we can do to help really build upon thematics. But I want to make a quick plug for
41:20the street pro portfolio. My guess is that most of the people listening today, uh, are already familiar
41:25with Chris and, and already know about the great work that's happening in the pro portfolio. But for those
41:29that don't, um, one of my favorite things about pro portfolio is that we have a professional
41:35money manager, right? So even if, even if you tune into the pro portfolio, you're just saying,
41:39I'm just looking for, you know, a couple of stock picks and I just, um, I want to figure out what
41:44might be a good investment for the next five years. Well, you can definitely get that from pro portfolio,
41:49but I love watching how Chris manages the portfolio and takes profits when he should, and, and even
41:55takes losses when, when those happen too, right? Seeing that thought process of a professional
42:00money manager is something that most of us don't get, um, most of the time, right? So, um, so I see
42:06huge value in things like that. And I just want to say thank you, Chris, for all you do with that.
42:11Um, and for anyone else who is interested, please feel free to continue to leave questions, um, on this
42:18webpage, uh, either in the LinkedIn or, or on the street pro portfolio. And I'll make sure that we
42:25get answers to any questions that, um, you continue to post. So with that, thank you very much.
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