Conviction–Investability–Time Horizon Framework
Screen durable investment themes before turning them into products
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 99%
The framework evaluates a proposed investment theme through three gates: conviction, investability, and time horizon. Conviction asks whether credible research supports the theme becoming a meaningful structural force in the economy. Investability tests whether enough public companies offer material exposure to create a diversified and operationally viable portfolio; Global X looks for at least 25 to 30 companies. Time horizon separates durable transformations from temporary enthusiasm by requiring the trend to unfold over decades. A theme advances only when it passes all three gates. This structure aligns a compelling future-facing narrative with the practical constraints of portfolio construction, reducing the risk of launching a narrow, poorly diversified, or short-lived product.
Origin
Luis Berruga described the framework developed by Global X over fourteen years of evaluating thematic ETF ideas on Masters in Business.
Core principles
- 01Target structural economic shifts rather than temporary popularity
- 02Demand strong evidence before committing to a theme
- 03Require enough investable companies to support diversification
- 04Use decades—not quarters—as the relevant time horizon
How to run it
- 1
Define the theme
State the proposed structural change and the part of the economy it is expected to reshape. Keep the definition narrow enough to distinguish genuine beneficiaries from loosely associated companies.
Pro tip Express the theme as a durable economic shift rather than as a list of popular stocks.
Watch out A vague definition makes every subsequent inclusion decision subjective.
- 2
Test conviction
Use market size, adoption, technology, policy, and industry evidence to determine whether the trend can materially affect the economy. Challenge optimistic assumptions before proceeding.
Pro tip Consult industry participants, executives, analysts, and specialist researchers.
Watch out Current popularity is not evidence that a trend will persist.
- 3
Test investability
Identify a sufficiently broad universe of liquid public companies with meaningful exposure to the theme. Confirm that the universe can support diversification and reliable trading.
Pro tip Use 25 to 30 companies as a practical minimum for an ETF-style portfolio.
Watch out A powerful idea can still be unsuitable as an investment product if too few companies provide direct exposure.
- 4
Test the time horizon
Determine whether the theme represents a structural shift capable of unfolding over two or three decades. Exclude ideas whose investment case depends mainly on a temporary cycle.
Pro tip Ask whether the theme would remain relevant after current headlines and market conditions disappear.
Watch out Inflation or interest-rate trades may be useful, but their cyclical reversals make them different from structural themes.
- 5
Advance only complete candidates
Move the proposal into detailed product design only when conviction, investability, and longevity are all present. Record why each gate was passed so the thesis can be reviewed later.
Pro tip Treat a failed gate as a reason to monitor the theme, not necessarily to abandon it forever.
Watch out Do not compensate for a weak gate by overstating the strength of another.
In the wild
A research team studies electric vehicles using addressable market, penetration rates, government incentives, falling battery costs, and improving charging infrastructure. It then identifies roughly 40 to 50 relevant public companies and tests the proposed portfolio for liquidity and capacity before beginning the ETF launch process.
→ The narrative becomes a diversified, evidence-backed product candidate rather than a speculative bet on one automaker.
A product committee encounters a fashionable technology with intense media attention but only twelve relevant public companies and no convincing evidence of durable adoption. It keeps the subject on a research watchlist rather than forcing it into a fund.
→ The firm avoids launching a concentrated product whose popularity may disappear before it reaches scale.
Common mistakes
Confusing popularity with conviction
A theme can dominate headlines without having the economic evidence needed to persist for decades. Conviction must come from structural research rather than attention alone.
Ignoring portfolio feasibility
A compelling trend is not automatically investable. Too few liquid companies can create concentration, capacity, and trading problems.
Treating cyclical trades as themes
Inflation and interest-rate exposures can be useful tactical products, but expected reversals distinguish them from long-term structural shifts.
Is it for you?
Best for
It is best for investors, research teams, and product developers evaluating long-term thematic opportunities.
Not ideal for
It is not designed for tactical trades, cyclical hedges, or themes expected to disappear within a few years.
From the transcript
“We look at three things. We look at conviction, we look at investability, and we look at a time horizon.”
“We need at least twenty five to thirty companies to be able to launch an e t F”
“We are literally looking at disruptive and structural shifts in the economy that in some cases can take decades to play out.”
From the episode
Luis Berruga on ETF Investments
Luis Berruga