The relevance of key investment themes is that they focus on investments where demand is robust and is likely to exceed supply for the foreseeable future. This focus eschews the conventional asset management industry template that uses a geography based allocation driven by expected gross domestic product (GDP) growth in favour of global themes spotlighting the higher growth opportunities irrespective of geography. Our geographic allocation is a fall-out from our thematic approach not a driver of it. Investments are made with managers that have conviction in their ideas and are agnostic to market indices.
With the exception of the US, where rising obesity rates have arrested the improvement in life expectation, developed and emerging economies are witnessing increases in life expectancy. Awareness of technology advances and medical discoveries aided by the availability of cheap genome sequencing is making bespoke preventative medicine a reality to gradually replace treatment-based generic drugs. Awareness of the broader issues of care and insurance is valuable.
Today’s industries require greater use of lightweight materials and compounds. Awareness of natural resources needed for battery technology and storage plus industrial applications such as fibre lasers is essential.
Including automation, artificial intelligence and machine learning. While there are similarities with components of the Materials theme, the scale of demand and development of robotics in global industries identifies it as a separate theme that we need to accommodate.
History has demonstrated that the strongest and most consistent returns have come from investing in smaller companies and gaining exposure to their growth. As investors not constrained by size (not too big), we have a natural preference for smaller companies in our thematic approach but there are also pockets of the world where we find the availability of smaller companies to be particularly attractive. Like our ‘Reform’ theme, this can be mistaken for a pure geographic allocation. In Japan, the UK and the US, there is a rewarding landscape of smaller companies that are not labour or capital intensive, often disruptive to mature businesses, that warrants a key theme identification.
Most people are aware of the need to ward off cyber attackers including the ringfencing of personal data. In addition, there is a much wider context to Security that involves food and drinking water testing to physical protection. Feeling safe and secure is a fundamental requirement now and going forward.
Unlike those above, this is not an obvious theme and can be mistaken for pure geographic exposures but it is important to recognise the benefits that accrue to domestic companies when their previously moribund economies are galvanised through political leadership. When those economies are the number three and seven ranked economies by size, i.e. Japan and India, the rewards to investors can be substantial
The move to clean energy and climate control, awareness of environmental challenges and the pressures on governments to clean up their acts makes this a sustainable theme going forward.
Growing demand as incomes rise and diets change amid greater awareness of personal health responsibility creates increasing challenges and opportunities for the food chain.
The need to build infrastructure in both developed and emerging economies is both an engine of economic activity and a necessity following years of under– investment post the great financial crisis. Whether it be schools, toll roads, railways or phone towers, the need for more is persistent
In many emerging or emerged countries there is a desire to acquire the trappings of higher incomes. The beneficiaries are not confined to local markets but are beneficial to global and local companies who understand the consumption demands of the newly affluent
Many of the above contain a common theme – technology, which pervades most industries. The need to be aware of the disruptive impact of technology is key. The impact of online shopping on traditional retail is ongoing and crushing high street operators. Technology may be transforming the car industry but there is clearly potential for disruptors like Tesla to be disrupted themselves.
Many of the above themes will overlap. For example, Yaskawa, a Japanese robot manufacturer, may appear in the Reform, Materials and Robotics themes. Individual stock exposures are monitored through our internal look-through analyses.
Sustainability and ESG (Environment, Social & Governance) have gained much air time and column inches in the financial media recently. It is good that this trend has gathered a momentum that is likely to persist. As thematic investors, we have always adopted an awareness of sustainability issues starting before they became a trend. While we, as a fund of funds manager, do not have direct control over individual security selection, we invest with conviction investors who share the same ESG mantra as ourselves.