VistaShares

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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.

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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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.

What makes something a trend

A trend is a structural change expected to play out over many years and across several industries. It is different from a sector, which groups companies by what they make, and from a style, which groups them by traits such as size or value. A trend groups companies by the change they are exposed to, which means a single trend can include manufacturers, software firms, service providers and utilities.

Space is one example. It covers companies that launch rockets, build and operate satellites, make the components that go into them, and provide the ground equipment and data services that make them useful. Many of those companies also sell to other industries, and space may be a small part of their business or the whole of it.

Robotics and automation cover industrial robots, the motors, sensors and controls inside them, the software that runs them, and the companies adopting them to make factories and warehouses run with fewer people. Defence covers the firms that build aircraft, ships, vehicles, munitions, electronics and the systems that connect them, a business shaped by government budgets and long procurement cycles.

Power covers generation, transmission, storage and the equipment that ties them together, at a time when demand for electricity is growing in places where it had been flat for years.

Each of these is a reasonable description of a real change. None of them comes with a ready-made list of holdings, and the list is where a thematic fund is really decided.

A trend also has a lifecycle. Early on, few companies are purely exposed and those that are tend to be small and speculative. As the trend matures, revenues grow, larger companies move in, and the list of holdings becomes broader and steadier. Later still, the trend may simply become part of the ordinary economy, at which point it is hard to tell apart from the sectors it once cut across.

Where a trend sits in that lifecycle changes what a fund built on it is likely to hold and how it is likely to behave. A young trend is carried by a handful of companies whose results can swing widely. A mature one is carried by established firms whose results look more like the wider market.

Most trends also attract attention in waves, with periods of enthusiasm and periods of neglect that have more to do with sentiment than with the underlying change. Those waves can move the prices of thematic funds a great deal without saying much about whether the long-run story is on track.

Trends also overlap with each other. Power is an input to almost every other trend, robotics borrows from the same component makers as defence, and space depends on both. A client holding several thematic funds may find the same companies appearing in more than one of them.

That is why the first useful question about any thematic fund is not whether the trend is real, but how the fund has turned it into a list, and what it had to decide to get there.

It also helps to separate the trend from the companies. A trend can be entirely real while the companies chosen to represent it are poorly placed to benefit, and the reverse can happen too.