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Is your portfolio positioned for these investment themes?

AMP Ltd’s (ASX: AMP) funds management arm, AMP Capital, has released its list of key investment themes for 2014. The list identifies two positive themes investors should consider using to benefit their portfolio and two negative themes investors should try to avoid.

Here are the two positive themes and an example (provided by me) of a way to play each theme:

1) Merger & Acquisition activity – After a number of ‘quiet’ years the pipeline of initial public offerings and M&A activity looks set for a boost. As Australia’s only listed investment bank, Macquarie Group Ltd (ASX: MQG) is poised to benefit from the pick-up.

2) Housing construction recovery – While the decline in interest rates has occurred, the pick-up in building activity has been slow to get going. AMP thinks the recovery is gathering momentum which will benefit a range of material suppliers and hardware and electronics retailers. CSR Ltd (ASX: CSR) manufactures a range of building products which would benefit from this theme.

On the flip side, here are two negative themes which AMP suggests being wary of and an example (provided by me) of companies to potentially avoid:

3) Retailer scrutiny and cost pressure – In 2013 retailers who sourced products offshore faced scrutiny after the disastrous factory fire in Bangladesh. AMP expects this scrutiny to continue and for retailers to experience increased sourcing costs. Most retailers are exposed to these risks, with companies like Premier Investments Ltd (ASX: PMV) who directly source, more exposed than resellers.

4) Mining capital expenditure (capex) – As most investors are aware there has been a significant decline in capex. However AMP warns that expectations may still be too high and suggests investors be attuned to the potential for further downgrades. As with the retailers above, the list of mining service companies  impacted by this theme is a long one. Firms wholly exposed to the resource sector such as Ausdrill Ltd (ASX: ASL) would appear most at risk should this theme eventuate.

Foolish takeaway

Many savvy investors use themes to identify sectors with positive attributes to search for stocks. Not only can it be a way to cut down the research to a more manageable task, but it can mean investing with the wind at your back.

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Motley Fool contributor Tim McArthur owns shares in Macquarie Group and CSR Ltd.

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