We are firm believers that themes are critical drivers of market returns, and that they need to be understood by investors from both risk and reward standpoints. Themes seek to identify the major areas of structural change in the world. This structural change can be political, economic, social, technological, or environmental; its impact will manifest across traditional economic sectors, and will be significant in magnitude and long-term in duration.
Themes are a critical element of our idea-generation process and, alongside evaluation of fundamentals and environmental, social and governance (ESG) considerations, constitute a key component of our valuation of securities.
The case for thematic investing
Why we believe using themes to guide an investment process can help to deliver long-term sustainable returns.
Thematic strategies – the investment opportunity
The basis for our thematic investment approach is that financial markets are relatively efficient at pricing in short-term information, but considerably less efficient at pricing in longer-term trends – or themes – the disruptive impact of which typically manifests over a longer-term horizon. We are long-term investors, and our approach has remained consistent since our founding in 1978: themes are symbolic of disruption in the global economy, disruption generates pricing anomalies, and these anomalies are magnified over a longer-term horizon.
Using themes like Earth matters and population dynamics to frame potential investment opportunities is an alternative to, and complements, a more traditional sector or industry classification approach. As thematic change disrupts established industries and companies, it provides an opportunity for active investors to identify winning business models and avoid the losers.