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Investment Insight Series – Thematic Investing Context

Investment Insight Series

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Having given you a bit of context around responsible investment, we wanted to dive into the concept of thematic investing. This focus on broad, long-term trends is how Sarasin & Partners approach investments so it’s worth looking at this approach in a little more detail.  

When considering the structure to apply as the base of any portfolio strategy, there are a range of different options available. Historically, one of the most popular of these has been division according to geography. However, when you think about the fact that most of the large listed companies are now multinational, spanning several regions (probably more once you factor in their supply chains), this becomes more complicated. Trying to attribute national characteristics when predicting companies’ performance doesn’t feel like a relevant approach in the modern connected, global economy. 

This is where themes step in. They can be global and therefore relevant across all regions and when built in at the design phase of an equity strategy they suit a long-term investor approach (as opposed to the quick-fix attempts of speculation). Essentially, a thematic approach today will be planning for what 2030 will look like and making decisions around the likely growth areas that will provide good investment returns over time. 

It will come as no surprise that Sarasin & Partners consider the following to be strong themes: 

  • Technology 
  • Climate change and loss of biodiversity 
  • Rising life expectancy (and the ageing population this causes) 

Technology 

Although COVID-19 has accelerated the move to digital, this trend was firmly embedded and will continue to be so. Artificial intelligence is steadily improving machine learning and natural language processing. The automation that comes about thanks to this technology is going to transform our relationship with technology, increasing our creativity, speed, precision and productivity. We’re also going to see amazing advances in medicine across the next decade, thanks to technical developments coming through.  Look at the speed in which treatments have been developed for COVID-19 (although I wish they’d crack on with the vaccine!) 

Climate change 

It’s clear that climate change and biodiversity loss are among the biggest challenges we face on this planet – it’s also the reason we have offset our estimated carbon footprint for the last couple of years. A crossover of technology and human ingenuity will be required to tackle these issues. We are already seeing a social and cultural shift in this area, with the focus moving from consumption to conservation and an increasing awareness of ESG (the three central factors in measuring the sustainability and societal impact of an investment in a company or business, discussed in our previous post). 

Increasing longevity of the population 

As life expectancy improves globally, populations are going to see increasing proportions of over-65s. This demographic is set to double by 2050 but will be the only population sector to expand. This shift will drive a range of consumption patterns and service needs, offering lots of growth prospects. 

Growth doesn’t guarantee a good return 

It’s interesting to note that not all strong growth trends make good investment themes. Take solar panels. For the last 15 years or so this has been a growth market with panels cropping up all over the place. However, solar panels became a cut-throat business dominated by Chinese manufacturers who could price everyone else out., leaving firms in this sector struggling to make money. The trick with thematic investment is not only spotting growth areas but having the understanding to analyse the workings behind-the-scenes and assess the long-term possibilities.  

This is where Sarasin & Partners are so valuable to us – they can spot the themes in amongst the noise of constantly appearing trends. With everyone talking about the legalisation of cannabis, crypto currencies, space exploration and more permanent working from home solutions, we’re glad to know Sarasin & Partners are the ones doing the analysis to assess what deserves a place in our thematic investment approach!