Thematic investing can be a powerful approach, and we’ve defined a framework of five measures to help identify what we consider to be the most attractive opportunities.
Thematic investing can be a powerful approach, which seeks to take advantage of significant secular trends that are underappreciated by the wider market. Over a multi-year time horizon, companies exposed to these trends have the potential to grow their revenues and cash flows faster than their competitors and command higher valuation multiples, leading to attractive returns for investors.
Not all investment themes are necessarily sustainable. Consider the multi-decade growth of combustion powered automotive vehicles, which in the US exploded from five cars per 1,000 people in 1910 to 245 by 1940 and 542 by 1970. Yet many of today’s most powerful trends have significant sustainable drivers – from healthcare to energy and food. For this reason, we include sustainable themes in our sustainable investing toolkit below. In addition, their typical bias towards smaller, faster-growing companies can contribute to portfolio diversification.
When constructing sustainable portfolios that aim to deliver attractive returns throughout the economic cycle, we combine four approaches. They provide exposure to different risks and potential returns:
Companies that are already performing strongly on various ESG measures.
Those that are moving in the right direction and may outperform as they improve their ESG performance. Often this ESG improvement can be accelerated through constructive engagement with company management.
Trends that are underappreciated by the market, which have the potential to grow rapidly and command higher valuations as the world’s regulatory, investment and consumption patterns shift, such as low-carbon funds, gender-equality funds and water funds.
Financial instruments designed with sustainability in mind. For instance, green bonds are a dedicated asset where the capital companies raise must be used for projects that will have a positive influence on the environment.
For those clients who have access to My Brown Shipley you can check your portfolio valuation online. If you have any questions, please contact your usual Brown Shipley adviser.
Chief Economist & Macro Strategist
Group Head of ESG, Sustainable and Impact Investing
Group Chief Investment Officer
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