Thematic funds aim at selecting companies, typically across a variety of sectors, which benefit from global themes expected to have a long-term growth potential. They are increasingly considered a valid alternative to a geographic or industry approach, and most suitable to today’s integrated global economy.
The remarkable product development activity in this space is further broadening the range of themes in which it is now possible to invest.
One of the latest innovations comes from Natixis Asset Management, with the launch of its Globalisation Winners fund last September. “We believe that emerging markets will enjoy a higher growth rate than the developed countries over the next 10 years,” says Dominique Sabassier, chief investment officer at the French firm. The fund invests in “companies that are most able to capture this long-term trend,” he says, within the sectors most impacted by globalisation. The stocks are mainly European, in order to limit the risk of investing directly in emerging countries.
Some other global themes have already had a very long shelf life. The food theme, which is incorporated in Natixis’ 20-year old Actions Agro Alimentaire fund, responds to the major demographic, social and technical challenges in the food and consumer space. These include demographic explosion and growth of middle classes in developing markets, ageing population in developed countries, as well as improved product quality standards. “This is a defensive investment theme,” claims Mr Sabassier “and it is historically less sensitive to market cycles than traditional equity funds, as the idea behind it is that everybody needs to eat.”
But increasingly, multi-thematic funds, as opposed to single thematic funds, are considered the way forward.
“To me, a successful thematic fund is a multi-themed fund,” says Guy Monson, managing partner at Sarasin and Partners, and pioneer of multi-thematic investments in London back in 1996. “It is the interrelationships between the themes, rather than the individual themes that interests me.”
Sarasin’s blended thematic fund EquiSar, managed by Mr Monson, currently invests in five core themes. “Whenever we introduce a new theme, we review the correlation of the thematic universe with the existing themes we hold in the fund,” he explains.
New themes are typically triggered by a development in the wider economy. The strong get stronger theme, which is now part of the fund, was originated by the sudden rationing of capital due to the credit crisis.
“I believe that the strong get stronger theme, which looks for companies that, either by luck of good judgement, at the end of the credit crisis are liquid and autonomous, will do exceptionally well,” says Mr Monson. “Abnormal balance sheet strength is going to become a multi-year contributor in stock price outperformance.”
Another theme Mr Monson is keen on is that of intellectual property. “The strong research and developments driven, patent driven and intellectually property rich companies will outperform, as the R&D budgets at many weaker competitors will come under pressure, there will be a quest for efficiency, and a drive to save resources and costs,” he says.
First out of the blocks
Oliver Kratz, manager of the Global Thematic fund at DWS in New York, stresses the importance of identifying a theme when it is still in its bud, and starting investing in it before anybody else. “There are some monumental shifts taking place in some industries, countries and sectors, and once they happen and once everybody knows about them, it is typically too late to invest in them,” says Mr Kratz.
Ten to 12 themes constitute the investment base of what Mr Kratz believes to be one of the oldest thematic funds around. “All our themes or sub-strategies share one common phenomenon: they identify a sequence of events, which could be micro-economic or macro-economic or structural, that are going to happen for sure over a period of three to five years.”
The latest new entry in DWS’ fund is personalised medicine, which has its foundations in a deeper understanding of the DNA of the human beings and aims at developing more fine-tuned, customised treatments.
The social impact that personalised medicine will have on the world population is going to be as big as the internet, believes Mr Kratz. It is still at the data collection stage, “in 1995 in internet terms,” but there is no doubt it will positively grow, he says. “The fact that people will explore personalised cancer treatment options when they are available is something nobody will argue on.”
Thematic investing is indeed very much associated to the study of future challenges that the world face.
“There is a whole host of environmental and social challenges,” says Tim Dieppe, director of SRI (socially responsible investing) at Henderson Global Investors. “Companies, within specific industries, that provide solutions in a sustainable and economic manner to these kind of challenges are well placed to outperform the market over time,” he says, explaining the firm’s Industries of the Future fund. The fund invests in ten themes, five of which are sustainability or environmental themes and five social themes.
