As geographic boundaries blur and economies become more interdependent, the traditional approach of investing in regions or industrial sectors is tending to have less relevance, particularly in such a volatile climate.
Global thematic investing is an approach to investing that regards “the market” as being a single system or entity, and adopts a “big picture”perspective on the way the world works.
Treating the world as a whole does not come without its complexities, but the core idea behind this approach is to focus on significant global relationships and themes that influence the world’s economies.
Using long-term trend forecasting, rather than responding to short-term factors, helps a fund manager identify global themes that, in turn, determine the most promising stocks in which to invest.
Patrick Noble, senior investment specialist at Zurich Investments, says the company does not focus on benchmarks when constructing the portfolio for the Zurich Global Thematic Share Fund, so it regards volatility as being the standard deviation of returns, rather than as benchmark tracking error.
“The benchmark-unaware approach takes the focus away from the ‘short-termism’ and we look to build a portfolio of lowly correlated themes,” Noble says.
“Each theme has to offer an attractive asymmetry where the downside is limited relative to the return potential.
“The low correlation – don’t expect all themes to move in unison – [the] attractive long-term asymmetry, and the ability to truly move away from parts of the market that are unattractive – for example, western banks – has meant the fund has historically outperformed the market, at lower levels of risk.”
Thematic investing The turbulent markets of 2011 have prompted investors to question even more whether to invest in equities at all.
Noble says the decision to invest in equities – global equities, in this instance – begins by asking:“What do I buy? Where do I look? How do I make my decisions? How do I frame my portfolio?”
Traditional global share funds position their portfolios by using country allocation, then sector allocation, but Noble says this does not achieve a forward- looking result.
“We all know that we have seen histories,” Noble says.
“At the moment the history is that the United States market makes up a large portion of the MSCI Index and indeed, across those sectors, we also know that financials also make up quite a large component,” he says.
“Now if you’re using that, or effectively the rear-vision mirror, to frame your portfolio, there might be a few things there that might be a little concerning for you, none the least being financials.”
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