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the latest analysis of green and ethical investment


The definition of thematic investing?


Thematic investing is about identifying global economic trends, driven by politics, culture, demographics or a combination of all three. The ‘core drivers’ behind most thematic investment funds are population growth, rising wealth in the developing world, natural resource scarcity, energy security and climate change.

What is driving thematic investment?

At worldwise Investor our thematic fund range is biased towards environmental themes, such as water, clean energy and forestry, but also includes demographic themes such as agriculture. This bias mirrors the investment options available to UK investors. These are investment themes which are closely linked to the core drivers identified above.

Expert Fund Management

Thematic investing is a style of investing which ignores geographical boundaries and asks fund managers to be experts in a particular investment driver or theme, knowing “a lot about a little,” rather than trying to know a little about all available companies. It is about finding companies responding to a particular human need, understanding how this need is being serviced from factory to consumer ( in investment speak ‘upstream’ and downstream’) and investing in companies which are well positioned to take advantage of these changing market conditions. Because few themes are constrained to one industry or geographical region, traditional research will often uncover only part of a major trend. By identifying and understanding relationships across sectors and regions, thematic research can give investors the edge over their contemparies, or as investment professionals like to say provide ‘alpha-enhancing ideas’.

Different share universe

The stocks which fund managers select within a thematic fund tend to be very different from those you might see within an index such as the MSCI World, or the FTSE 100. For example, Pictet estimate that only 10% of the stocks in their Global Megatrend Selection fund overlap with the MSCI World index, despite holding nearly 500 stocks. Thematic funds, due to their focus on emerging industries, tend to have a higher percentage of smaller companies in their portfolio compared to the major indices.

Fund context:

Investment themes are based on political, cultural and demographic changes which are set to change the market landscape and grow into the future. They can be broad, or specific in nature.

Thethematicinvestor.com a US based site identifies the following investment themes:  Security; Education; Industry consolidation; New Management ; Replacement demand; the cashless consumer; the cash strapped consumer; Obesity; intellectual property; luxury goods; scarce resources; and connectivity.

Henderson Global Investors have 10 Sustainability themes, 5 are Environmental and 5 are Social: Clean Energy, Efficiency, environmental Services, Sustainable Transport, Water Management, Health, Knowledge, Quality of Life, Safety and Social Property & Finance 

Newton Investment Management believe the world will be characterised by less debt, a more balanced global economy, a higher cost of energy, and older population and a greater degree of connectivity. As such they have named their investment themes as deleveraging, state intervention, large cap laggards, financial concentration, fire risk, global re-alignment, chinese influence, networked world and smart themes, the energy economy, population dynamics and healthy demand.

Pictet identify within their Global Megatrend Selection fund investment themes they call ‘megatrends’. This fund invests in 9 Megatrends based on 5 investment themes - Ageing and Health are driving Generics and Biotech; Individualisation is driving Premium Brands; New Technology is driving Security and Digital Communication; and the Environment is driving Clean Energy, Water, Timber and Agriculture.

Related funds:

Henderson Global Care Growth
Henderson Industries of the Future
Pictet Environmental Megatrend Selection
Pictet Global Megatrend Selection

Useful links:

Worldwise Investor: Guide to Ethical and Green Investing

Worldwise Investor: What is an Ethical Fund?

Worldwise Investor: What is an SRI Fund?

Worldwise Investor: What is Responsible Investing? 

Worldwise Investor: What is Sustainable Investing?

Worldwise Investor: What is Green Investing?

 

Worldwise Investor: Agriculture Theme
Worldwise Investor: Carbon Theme
Worldwise Investor: Clean Energy Theme
Worldwise Investor: Environmental Theme
Worldwise Investor: Forestry Theme
Worldwise Investor: Multi Thematic
Worldwise Investor: Water Theme

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Mark Hoskin is a Partner at Holden & Partners. Holden & Partners are Chartered Financial Planners who provide financial advice to high net worth clients, the majority of whom have a significant interest in ethical or environmental issues.

Mark Hoskin graduated with a History degree from Keble College, Oxford and went on to become a Chartered Accountant with Price Waterhouse. He cofounded Holden & Partners in 2003 and is a Certified Financial Planner and Chartered Financial Planner. Holden & Partners set up Worldwise Investor to help both advisers and investors understand quickly and easily how they can benefit from ethical and environmental investment in the UK market.


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