Thematic investments target ideas, personal values or trends that do not fit neatly into existing sector classifications.

Think of it this way: A technology like artificial intelligence (AI) doesn’t have its own official industry classification, and many companies say they develop AI, use it or are otherwise involved with it. So how do you know which of these is truly representative of the field? More importantly, how do you start building a portfolio of the most relevant AI investments?

You can pick a few well-known tech stocks or spend some time reading company reports to identify more niche players, but identifying relevant investments may not be easy, especially if they are outside the tech industry.

This is where the style of investing known as “thematic” hopes to make a difference. The goal is to develop investment products that allow you to easily put money into ideas, personal values or trends (especially new or potentially transformative technology or social forces) that don’t fit neatly into existing classifications. Thematic investing uses research to identify companies related to a particular theme and then group them into lists, baskets or funds that you can invest in. Unlike sector investing, themes can include investments that span many sectors.

What makes a theme is where things get interesting. While traditional industry sectors group companies that do similar things and traditional indices select companies based on their market capitalization (or other fundamental or technical metrics), thematic strategies start with an idea or trend and find public companies that seem relevant.

Thematic investment products should be based on their ability to both identify investable themes and find investments that support those themes, without resorting to standard classifications or related metrics. This could mean using technologies such as artificial intelligence to comb through company reports and other information to bring together potentially thematically linked companies in a package, or relying on the expertise of professional fund managers to explain a theme and then pick and choose stocks.

It is then up to the fund manager or researchers to assess whether the assembled portfolios perform as intended without deviating from the targeted themes. This may involve the creation of measures of thematic relevance that are separate from more traditional performance measures such as returns or volatility.