Thematic funds that look like flexi caps and do better

Summary: Thematic funds are usually narrow and risky, but a few stand out for behaving like diversified flexi-cap funds. This piece investigates whether such ‘oddball’ thematic funds truly offer smoother returns or just wear a broader mask. Thematic funds are meant to be narrow. Their job is to take a strong bet on an idea, whether it is Consumption, Infrastructure or Business Cycles. No wonder they have a portfolio of stocks whose businesses resemble each other. However, a curious set of thematic funds has emerged that do just the opposite. These funds are meaningfully diversified across several sectors. Unlike many other thematic funds, they don’t let the top two or three sectors dominate the portfolio. In fact, at first glance, they almost resemble the relatively more safe flexi-cap funds. But is that really the case? The broader problems of thematic funds Before we get to the exceptions, it is worth noting that thematic funds are generally born of fads. At different points, energy was fashionable, PSUs came back in vogue or IPO-focused funds attracted headlines. The marketing premise is usually simple. Latch on to a powerful theme that looks set to outperform. As such, most thematic funds end up concentrating in one or two sectors. An energy fun