Why we typically do not recommend Thematic Funds?
Written by IME Capital's Investor Desk on 23-Oct-25 | Categories:
Equity
At IME Capital, we typically recommend that most investors avoid thematic funds, except in a few specific situations. Here's why:
\nWhile the narrative behind a thematic fund—be it EVs, digitisation, or manufacturing—may sound compelling, evaluating its actual investment merit requires far more than marketing material. It involves understanding sector dynamics, valuation cycles, global trends, and company-specific fundamentals—something even professional investors find challenging.
If a theme is genuinely promising, most high-quality diversified mutual funds already have meaningful exposure to it. Fund managers continuously rotate between sectors and themes, adjusting allocations as market conditions evolve. You’re getting the benefit of thematic insights, without having to take concentrated risks.
By the time a thematic fund is widely marketed, the underlying stocks often have already rallied sharply, and valuations may be expensive. This means the best part of the investment journey could already be over, leaving investors exposed to the risk of drawdowns.
Even if you enter a thematic fund at the right time, you still need to know when to exit—before the theme loses steam. This kind of active monitoring and decision-making is not easy for most investors and can result in poor timing on both entry and exit.
For these reasons, we believe that identifying the right themes, sectors, and companies is best left to experienced fund managers who are already doing this within diversified funds. These funds allow you to benefit from evolving themes while staying broadly diversified and professionally managed.
\nThat said, there are a few exceptions:
\n- If you are a sophisticated investor who actively tracks macro and sectoral trends, or \n
- If there is a specific theme you strongly believe in, and where diversified funds aren’t meaningfully exposed—
then thematic funds can play a small satellite role in your portfolio.
But for most investors, sticking with high-quality diversified funds is the more prudent path to long-term wealth creation.
IME Capital Investment Queries provide answers to common investor queries that are directly written by IME Capital's Central Investment Team. This helps ensure centralised, common and transparent communication of our thoughts to all investors (& potential investors) of IME Capital, and helps mitigate against the disparate communication common in the wealth management industry. Please note, that the answers to these queries can be time/market-condition sensitive, or only applicable to specific types of investors.
