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Invest in a changing world

15 October 2020
3 Minute Read
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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.

WHAT YOU NEED TO KNOW
  • Thematic investing is an approach that involves identifying significant secular trends that we feel are underappreciated by the wider market.
  • We use a quintet of powerful structural drivers to identify and monitor thematic opportunities: demographic change, regulatory developments, social shifts, sustainability and technological progress.
INTRODUCING THEMATIC INVESTING

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.

QUINTET’S SUSTAINABLE INVESTMENT TOOLBOX

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:

Leaders
Companies that are already performing strongly on various ESG measures.

Improvers
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.

Thematic
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.

Dedicated assets
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.

Authors

Daniele Antonucci
Chief Economist & Macro Strategist

James Purcell
Group Head of ESG, Sustainable and Impact Investing

Bill Street
Group Chief Investment Officer

How to Use this Information

This article contains general information only and is not intended to constitute financial or other professional advice or a recommendation that any recipient of this information should make any particular investment decision. Always consult a suitably qualified financial advisor on any specific financial matter or problem that you have.

 

Except insofar as liability under any statute cannot be excluded, neither Brown Shipley nor any employee or associate of them accepts any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in this article or for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the recipient of this article.

 

Investment Risk

Investing in stocks either directly or indirectly carries investment risk.  The value of equity based investments may go down as well as up over time due to factors such as, market volatility, interest rates, and general economic conditions.

 

© Brown Shipley 2020 reproduction strictly prohibited.