Rethinking Thematic Investing in Light of Strong Performance
The world of thematic investing is undergoing a transformation, pushed into the spotlight by impressive results from strategies pioneered by Morgan Stanley. While skepticism around thematic investing had once prevailed, recent data warrants a fresh examination of its merits.
Equities: Themes That Deliver
According to Morgan Stanley’s latest reports, thematic investment categories have significantly outperformed the S&P 500 index, beating it by 27 percentage points in 2025 and 12 percentage points in 2026 so far. Key sectors gaining traction include health care, particularly in areas like artificial intelligence (AI) applications and demographic-related stocks, as well as AI infrastructure and innovative robotics, dubbed “humanoids.”
Analysts at Morgan Stanley forecast a major leap in the capabilities of large language models (LLMs) this year, noting that Chinese developers are discovering efficient shortcuts to enhance AI. This trend suggests a continuous surge in demand for computing power, resonating across sectors including semiconductor manufacturing, energy storage, and more.
The escalating need for advanced AI—where it evolves from simply responding to commands to taking autonomous actions—has reshaped expectations and amplified demand for crucial resources and infrastructure, particularly in semiconductors and energy storage solutions.
Moreover, defence stocks are projected to be pivotal in a global push for national security self-sufficiency. This encompasses a broad spectrum of sectors, from renewable energy to critical minerals. Amidst the ongoing Iran conflict, rising demand for LNG and renewable power is anticipated to precipitate significant shifts in energy infrastructure.
Investment Opportunities
Recent updates from Morgan Stanley include lists of promising stocks for Canadian investors, particularly in the AI Infrastructure and Powering AI sectors. Notable mentions include:
- Nvidia Corp. (NVDA-Q)
- Microsoft (MSFT-Q)
- Apple Inc. (AAPL-Q)
- Arista Networks (ANET-N)
- Constellation Energy Corp. (CEG-Q)
- Brookfield Corp. (BN-T)
- Cummins Inc. (CMI-N)
In the defence sector, attention is drawn to companies like:
- General Dynamics Corp. (GD-N)
- RTX Corp. (RTX-N)
- Airbus SE
- Rolls Royce Holdings PLC
- Solar Industries India
Energy Market: Ceasefire Cautions
Turning to the energy sector, BofA Securities analyst Kalei Akamine issues a caution regarding the ceasefire in the Middle East. His recent report suggests that while there may be a temporary halt, significant challenges remain, with 11 million barrels of oil still off the global markets, and the potential for a prolonged return to production.
Examining current oil inventory levels reveals a stark contrast to 2025’s increased storage, underscoring the supply-demand imbalance that continues to escalate.
A favorite among analysts remains Ovintiv Inc. (OVV-T), a company rooted in Canada. Its recent acquisition moves, including NuVista, position it for long-term growth while improving its balance sheet.
Diversions: Insights from Frog Diversity
In a lighter vein, the discussion shifts to fascinating findings in biodiversity. A study highlights how African frog diversity has been shaped by climate events over the millennia. The research suggests that during the last ice age, frogs found refuge in isolated areas, leading to a rich variety of species that thrive today.
This understanding of biodiversity resonates on a broader scale, drawing parallels to economic adaptation and the market’s behavior. By comprehending how living species adapt, investors may glean insights into asset market dynamics.
Conclusion
Thematic investing is more than a passing trend; it offers valuable insights and opportunities across various sectors, particularly in health care, energy, and AI. Meanwhile, understanding biological and biodiversity patterns can provide a unique lens through which to view market fluctuations. For more updates on market movers, analyst actions, and insights, visit our Inside the Market page.
Additional Insights
- Why the bond market won’t return to pre-war levels.
- Understanding the emergence of a new playbook for navigating market uncertainty.
- Discover ideas for seeking yield in today’s market.
Quick Hits
Commodity market traders, driven by market sentiment, remain positive on crude, gasoline, and other key commodities while holding a cautious view on natural gas and copper. The dynamics and trends within the bond and commodity markets are crucial for investors in navigating a complex landscape.
