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VistaShares delivers innovative Liquid Alternative investment solutions for today's investors. VistaShares ETFs are actively managed by industry and investment experts, offering a number of distinct strategies. Supercycle® Growth Equity ETFs seek exposure to technology-driven economic Supercycles® that the adviser believes may offer long-term growth potential. Target 15® option-income ETFs seek to generate monthly income while complementing a core equity portfolio. Income is not guaranteed and will vary, and the Target 15® name refers to the strategy's objective rather than a guaranteed or promised return. Investing involves risk, including possible loss of principal. There is no guarantee that any investment objective will be achieved, and past performance does not guarantee future results.

The subject of this address

This address writes about trends as an investment approach: the practice of grouping companies by the long-term change they are exposed to rather than by what they make today. A launch provider, a satellite operator and a maker of ground antennas can all belong to one space trend. A software firm and a gearbox manufacturer can share a robotics one.

That cross-sector reach is the appeal of a trend, and also the source of most of the questions that arrive here: how pure the exposure is, how concentrated, and how much of it overlaps with what a portfolio already holds.

Those questions are better asked before a fund is bought than after it has had its first difficult year, and they can almost always be answered from the fund's own documents.

Four trends, four different clocks

Trends run on different clocks, and the clock matters as much as the idea. Space runs on launch schedules, satellite replacement cycles and a mix of government and commercial customers, with long stretches of investment before revenue arrives. Many of the companies are young, small and still proving their business models, which makes the trend volatile even when progress is steady.

Robotics runs on industrial capital spending. Factories buy automation when labour is scarce, when the economics of a production line change, or when a manufacturer moves production closer to home. That spending rises and falls with the industrial cycle, so a trend with a strong long-run case can still have years when orders slow sharply.

Defence runs on government budgets and procurement programmes that can last for decades. Orders are large and visible, and contracts are long, which gives the trend a steadier rhythm. But budgets are political decisions, and changes in priorities can shift spending between programmes quickly.

Power runs on utility planning, regulation and the pace at which new generation and grid capacity can be approved and built. Demand is rising, but supply moves at the speed of permits and equipment lead times.

Understanding which clock a trend runs on helps explain why a fund built on it can move sharply in ways that have little to do with the strength of the long-run story.

Those clocks also interact with the wider market. Young, small companies in trends like space tend to be sensitive to interest rates and to how readily investors will fund businesses that are still years from profit. Established firms in defence and power tend to be more sensitive to budgets, regulation and the price of the inputs they use.

So a portfolio holding several thematic funds is not necessarily diversified across trends. If most of them rely on small, fast-growing companies, they may all respond to the same change in financing conditions at the same time, whatever their trends are called.

Matching the clock of a trend to the time horizon of the client holding it is one of the more useful exercises an adviser can do, and it usually says more about fit than the trend's long-run case does on its own.

None of these clocks can be hurried by enthusiasm. Launches slip, factory projects wait for financing, procurement decisions take years and grid projects wait for permits, so the pace at which a trend turns into revenue is usually slower than the pace at which it turns into headlines.

None of this argues for or against any one of them. It argues for knowing which clock a fund is running on before judging how it has done over any particular stretch of months.

A fund that blends several of these clocks can smooth some of the swings, but it also blurs the story, and it becomes harder to say which part of the fund is doing the work in any given year.

Questions worth asking about any thematic fund

How does the fund decide which companies belong to the trend, and how strictly? What share of the fund sits in its ten largest holdings, and how many of those would already be in a broad market index? How large and how liquid are the smaller holdings, and what happens to the fund's trading when markets are stressed?

How often does the index rebalance, and how much does its makeup change at each review? What does the fund cost compared with a broad index fund, and what is the cost of the trading its rebalancing creates? How long has the index existed, and was its history calculated before the fund launched?

Then the portfolio questions. What would this position replace, and how much does it overlap with what is already held? How would the client feel holding it through a year in which the trend falls far out of favour, as most trends do at some point even when the long-run case holds?

Trends are usually stories about decades, and funds built on them are held through years. The fit is easier to judge when both of those are kept in view at once.

None of these questions has a single right answer, but each one has a definite answer for any particular fund, and those answers say far more than the fund's name does.

It also helps to ask how the trend is described today compared with when the fund launched. Trends evolve, and indexes are often revised to keep up. A fund that has changed its definition several times may still be faithful to the trend, but the companies it holds today may be quite different from the ones that built its track record.

Finally, there is the question of how the position will be reviewed. A thematic fund held for a story about decades is more fairly judged on whether the story and the fund's rules still match than on any single strong or weak year.

It is also worth knowing who the fund is designed for. Some thematic funds are built to be held in small amounts beside a core portfolio; others are built to stand on their own. The answer changes how much of a client's portfolio it makes sense to commit.

Asking them in advance also makes the later review easier, because the reasons for holding the position are written down and can be checked against what the fund has actually done.

A short written note of those answers, kept with the client file, is often the most useful record of why a position like this was taken in the first place.

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