The rise of the emerging market consumer, the socially responsible investor and scarcity of natural resources are all themes which we are all exposed to some extent within our portfolios, but from a sector point of view how can we separate the winning themes from the fads?
Fund investors tend to have long memories, especially where the big losses are concerned. Just look at the continued lukewarm view on the tech sector that has presided since the TMT boom and bust in the late 90s.
In it for the long term?
But tech funds continue to have their place as diversifiers in client portfolios, as do specialist equity vehicles in healthcare and biotechnology, financials, infrastructure and water. They have all performed well at various times, but should they be long-term core holdings?
“If you have a strong view on healthcare or technology for example, you would hope that was reflected across your generalist managers, but if not, there is a role for a specialist fund and there are some expert managers across these sectors,” says James Calder, head of research at City Asset Management, who is starting to think about pharmaceuticals and healthcare as themes he likes.
For some firms, such as Sarasin & Partners and Newton, thematic investing is the very essence of what they do, mostly very successfully.
Guy Monson, Sarasin’s CIO, says shifts in the world economy, as wage dynamics change and transportation and energy costs rise, are leading companies towards what he calls “glocal” solutions.
“There are flexible supply chains with greater local execution and the winners here will be companies that can best exploit this shift,” he says.
“Another them is the rise of ubiquitous information. Computers are everywhere, becoming increasingly powerful, used by more and more people, and creating more and more data. There is compelling investment potential to be found among companies capable of storing, handling and interpreting this data, as well as those harnessing the technological possibility of today’s vast computing power.”
Super powers
Liontrust’s Jan Luthman and Stephen Bailey use a macro-thematic process on their income and growth funds, and Luthman stresses that current themes are “more powerful than ever” with factors including globalisation, population change, global warming and quantitative easing that are historically unprecedented.
‘Big picture’ investing across sectors then can be just as important to thematic investing as singling out an individual niche areas. And even if you do invest in one individual sector or asset class, it is often a route in to larger global shifts. For example, a luxury brands or consumer trends fund being a play on emerging markets that can sit quite comfortably alongside your GEM fund of choice.
Read more on the topic of thematic investing in the December edition of Portfolio Adviser, available here.
