Thematic funds now contain around €572bn of assets worldwide, having grown at an annual rate of 37 per cent since 2018, according to a new whitepaper commissioned by Axa Investment Managers.
The report, Thematic Investing Set to Transform Asset Management?, which was written by Broadridge, interviewed 90 fund selectors in Europe, Asia Pacific and North America during the first quarter this year.
These fund buyers said thematic equity investing, defined as “an approach which aims to gain exposure to companies which will benefit from clear long-term structural changes resulting from political, economic and social forces”, was increasingly core to client portfolios.
Overall, since 2017 thematic portfolios have represented almost 40 per cent of all equity fund net sales.
Data from FTAdviser’s sister title Asset Allocator shows more than 70 per cent of active model portfolio ranges run by wealth managers now have exposure to one or more thematic funds, up from 50 per cent at the start of 2020.
Mark Hargreaves, global head of Framlington Equities at Axa Investment Managers, said thematic investing was no longer niche.
“Asset managers have always tried to identify trends,” he said.
“But thematic investing – building a portfolio around companies benefitting from long-term economic, political, or societal structural shifts, rather than a sector or geographical region, is rapidly rising.
“As the global economy evolves, it has become increasingly important to understand not only the challenges that the world is facing but how the way we live and work is changing. These megatrends – digitalisation, changing demographics, the rise of ESG and more – have increasingly influenced the way that we view the world and where we see potential opportunities to invest."
Thematic investing hasn’t always been in favour, and research on thematic ETFs trading in the US between 1993 and 2019 showed they underperformed the stock market by around 4 per cent for at least five years after their launch. Other research shows that fewer than 15 per cent of thematic funds survive beyond 15 years.
However, one side effect of the pandemic was the acceleration in trends such as e-commerce and sustainable investing as well as medical innovation.
Last summer, Isabella Labak, a multi-asset investment director at Fidelity International said on FTAdviser that: “[These changes have] only served to bolster the argument that investing for the long term in structural themes that span regions and sectors is an important area for investors to consider.”
She added that during times of uncertainty, investors look to areas of the market that are likely to deliver with greater certainty.
“Investment themes, with strong structural drivers such as an ageing population or online consumerism, look better positioned than most to weather the storm,” she said.
“By their very nature, themes are less affected by short-term noise, and long-term investors can reap significant returns by gaining exposure to structural trends. While Covid-19 certainly presents headwinds for many assets, the crisis has had the effect of speeding up the timeline on some of these structural trends.”
sally.hickey@ft.com
