Thematic investing – Feature


Most thematic funds don’t beat global equities over


longer periods. Kenneth Lamont, Morningstar


ble, as these portfolios are often volatile, but most institutional investment can focus on gaining value from investing in long term, structural, transformative shifts.” BlackRock does use its thematic investing over shorter time- scales. “Within our thematic portfolios, we invest over the medium to long-term with a three to five years investment horizon in mind,” Hambro says. “Investors have traditionally thought about portfolio construction in terms of geographical and sector allocations. However, with thematic funds growing rapidly in popularity and investing globally and across sectors, investors are increasingly asking how these funds fit into broader portfolios.” BlackRock’s investment thesis


is that


care staff are facing. “This has accelerated the need to deploy healthcare technology that can improve efficiency, reduce costs and make healthcare more available and affordable to all,” he says. Hambro also says the energy and resources megatrend offers potential growth opportunities. “Given the narrative on sustainability and climate change, the size of government sup- port and the technological improvements that have the poten- tial to make renewable energy more reliable, scalable and cost competitive.” On a longer-term outlook, Venkatramanan says: “Thematic investing involves seeking companies that are driving innova- tion and avoiding those that could be disrupted. Innovation arising from trends in technology, demographics, and energy and resources can unlock opportunities in areas that may offer long-term growth potential. “Goals associated to the energy transition are a great example of the large scale and long timeframe of thematic investing,” Venkatramanan adds. “According to the Intergovernmental Panel on Climate Change, through to 2050, between $1.6trn (£1.27trn) and $3.8trn (£3trn) in new climate investment is required for the supply side of the global energy system.”


Will it last?


It is interesting that Venkatramanan puts the case for thematic over a longer-term horizon, as one big question mark over the- matic investing is its long-term viability. “Most thematic funds don’t beat global equities over longer periods,” says Kenneth Lamont, senior fund analyst for passive strategies at Morning- star. Highlighting the point, in the past 15 years, more than three-quarters of thematic funds have closed, reveals Lamont. But to suggest thematic investing does not correlate over the longer term is not correct, Mattatia says. “Megatrend thematics are looking to capture long-term innovation and disruption. A short-term investment in megatrends can of course be profita-


investing in companies’ whose earnings are set to benefit from a theme, should lead to outperformance versus broader equity markets. “We believe strongly in the ability of thematic invest- ing to add value in a portfolio. The optimal approach to adding thematics into client portfolios depends on the investor’s investment objective and preferences,” Hambro says. The thematic trend is without doubt one that is growing and looks far from being a pandemic fad. There were a record 589 thematic launches last year – according to Morningstar – more than double the previous record of 271 in 2020, taking the total to 1,952. “We have seen some significant change in investor interest, with the debate changing from deciding whether to invest or not, to investors looking at how they can best invest to utilise thematics,” Mattatia says.


Just the beginning The key to success, of course, is connecting to the correct trend, which usually results in real long-term benefits for investors. The first thematic fund, according to Morningstar, was The Television Fund, launched in 1948 by Chicago-based Television Shares Management, which was designed to benefit from the rapid growth in the TV industry. And it certainly achieved that.


The fund plugged into new trends expanding out its scope to become the Television-Electronics Fund and in 1970 broad- ened out further again, as the Kemper Technology Fund, see- ing a great deal of success over decades as TV and technology kept growing. Investors seek to unlock the modern equivalent megatrend.


And although it has been around for some time, with a com- mitted segment of investors clearly seeking new megatrends in which to invest, it is still an approach that has to be fully embraced by investors. “We are still at the beginning of the- matic investing’s journey towards widespread adoption,” Mat- tatia says. “The range of measurable trends is still evolving, and we are adding further global macro trends to our indexes and tools for investors, and we expect to be constantly checking the relevance and completeness of our assessments.”


Issue 114 | June 2022 | portfolio institutional | 45


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52