Thematic Equities

Portfolio Managers have traditionally built active equity strategies by using the index as the point departure and attempting to generate superior returns relative to that benchmark through careful stock selection and tactical and strategic positioning. Unsurprisingly however, strategies born from an index naturally tend to exhibit the characteristics of that index, displaying similar correlations and returns, and clear country, region, sector, and size tilts.

Thematic investing takes a different approach. It rejects the notion that a benchmark is the optimal starting point for creating an investment strategy and instead focuses on “big picture” secular growth trends in the world. Thematic investing takes a step back from the traditional processes of constructing a portfolio where investment risk is measured in terms of deviation from a benchmark, and instead asks a more fundamental question: which businesses and industries will likely be a good place to invest for the next 10 to 20 years?

Thematic investors understand that powerful long-term structural changes are occurring in the world. If they can correctly identify these trends and build a portfolio of companies likely to be beneficiaries, while avoiding those which will be negatively impacted, they may be able to outperform the standard indices over a normal business cycle. In this paper we explore the concepts behind thematic investing, what makes it a compelling investment proposition, and how it can provide a well differentiated satellite for clients with a multi-year investment horizon.

Download PDF