Three-Flavour Thematic Investing Model
Match each investment theme to its duration, catalyst, and implementation style
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 97%
The model separates thematic investing into three distinct flavours. Long-duration secular themes unfold gradually and may suit diversified, set-and-monitor baskets of companies facilitating a persistent transition. Discontinuous-change themes are driven by identifiable catalysts over several quarters or years; they require active selection, greater concentration, deliberate sizing, and rotation as the opportunity evolves. Business-cycle themes identify companies, sectors, qualities, or factors suited to a particular macro regime, such as inflation beneficiaries. Classification matters because each type demands a different holding period and implementation method. Moore prefers combining catalyst-driven and business-cycle themes: medium-term ideas generate potential alpha while cycle awareness keeps the portfolio aligned with prevailing economic conditions. Investors must still get the theme, asset class, timing, and sizing right.
Origin
Kate Moore developed a thematic approach early in her career on Morgan Stanley Investment Management's global thematic hedge fund and later applied it in BlackRock's Global Allocation portfolio.
Core principles
- 01Different themes operate on different time horizons.
- 02A theme's type determines how actively it should be managed.
- 03Catalyst-driven themes require concentration, timing, and rotation.
- 04Business-cycle themes connect macro regimes with beneficiaries.
- 05Combining medium-term catalysts with cycle awareness can strengthen a portfolio.
How to run it
- 1
Define the change
State the economic, technological, regulatory, or behavioral change behind the opportunity. Specify what is changing and why it matters to investable assets.
Pro tip Write the mechanism as a causal chain from change to revenue, margins, or demand.
Watch out A fashionable label is not a theme unless it changes economic outcomes.
- 2
Classify the theme
Determine whether the opportunity is a slow secular transition, a discontinuous catalyst-driven change, or a business-cycle expression. This classification sets the management style and expected duration.
Pro tip Reclassify a theme if repeated catalysts transform a tactical opportunity into a secular one.
Watch out Do not use a set-and-forget structure for a rapidly changing catalyst trade.
- 3
Identify the expression
Choose the companies, sectors, factors, or asset classes that most directly benefit. Distinguish true beneficiaries from businesses merely associated with the narrative.
Pro tip For catalyst-driven ideas, concentrate on a small group with the strongest exposure.
Watch out Broad baskets can dilute the return when only a few companies capture the economics.
- 4
Map catalysts and timing
List the events that could unlock value, extend the theme, or invalidate it. Estimate whether the thesis should play out over quarters, years, or an ongoing period.
Pro tip Use rolling catalysts to decide whether a theme deserves a longer portfolio role.
Watch out A correct long-term story can remain a poor investment without an investable catalyst.
- 5
Size and rotate
Set position sizes according to conviction, concentration, volatility, and idiosyncratic risk. Rotate among holdings as capabilities, catalysts, and relative opportunities change.
Pro tip Review both the overall theme weight and each constituent's contribution.
Watch out Getting the theme right does not compensate for excessive sizing or weak constituent selection.
- 6
Combine durations
Blend medium-term catalyst themes with business-cycle exposures and, where appropriate, long-duration secular holdings. Give each theme a defined portfolio role.
Pro tip Use differently timed expressions to reduce dependence on one narrative.
Watch out Themes exposed to the same underlying risk may appear diversified while moving together.
In the wild
Moore initially invested in cybersecurity in January 2020 based on geopolitical risk. The pandemic expanded digital vulnerabilities and corporate spending, while subsequent events produced a rolling series of catalysts. Rather than treating it as one short tactical trade, she came to view security software as existential for companies and therefore a core portfolio theme, while retaining room to rotate among vendors based on capabilities.
→ A catalyst-driven position matured into a long-standing secular portfolio allocation.
An investor expects inflationary pressure and identifies sectors and company qualities that historically benefit in that environment. Instead of buying a static basket indefinitely, the investor monitors the business cycle, positioning, and policy signals, rotating the expression when the regime changes.
→ The portfolio captures a cyclical opportunity without treating it as a permanent secular trend.
Common mistakes
Treating every theme as permanent
Some themes depend on short-lived catalysts or one phase of the business cycle and require active exits or rotation.
Buying an indiscriminate basket
A broad collection of theme-adjacent companies can dilute exposure to the few businesses that genuinely benefit.
Ignoring timing and sizing
Investors can correctly identify a theme yet lose money through premature entry, excessive concentration, or the wrong asset expression.
Is it for you?
Best for
It is best for active equity and multi-asset investors translating structural or cyclical changes into portfolio positions.
Not ideal for
It is not ideal for investors unwilling to monitor catalysts, rotate holdings, or accept idiosyncratic risk.
From the transcript
“I think there are three ways at this time to approach the matics three different flavors, if you will.”
“The second type of thematics is what I would call like discontinuous change catalysts driven thematics”
“And then the third type of thematic investing, I would say, is really business cycle thematic.”
From the episode
Citi Wealth Chief Investment Officer Kate Moore on Macro Investing
Kate Moore