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Thematic investments on the march

Thematic investments is investing in the future. Megatrends – powerful, transformative forces that can reshape the global economy, companies and society – have been altering the way we live for centuries. Thematic investing offers opportunities to participate in those trends which are changing the world around us.

 

By Eun-Kyul Koh
Head Structured Solutions & Investment, Bank Vontobel AG 
And Michael Haupt
Senior Advisor Investment Strategies, Bank Vontobel AG      

 

Recognizing the potential for structural changes and timely investment in anticipated alterations are key to positioning portfolios so that they may benefit from long-term growth opportunities. That makes thematic investing particularly attractive for investors with vision. 

 

Categories of megatrends

Megatrends are long-term structural changes which completely reshape the global economy. They impact all levels of society and, thus, influence companies, institutions and individuals. As a result, they have developed into the basis for decision making in the fields of politics, economics and on a personal, individual level. Megatrends are long-term, effect all areas of our lives and are of global significance. Investors who follow these trends and who subsequently invest in companies which can profit from transformation, get an opportunity to generate an outperformance.

We have defined four megatrends. The first is: Disruptive Technologies. These are innovations which significantly alter the ways in which consumers, industries and companies work. AI, robots, semi-conductors and other innovations in the field of research and development raise productivity. 5G-technology, cyber security, quantum computing and the metaverse will continue to reshape our world.

Environmental Challenges and Multipolar World are two further categories which are oriented towards climate change and the need for more sustainable solutions. This category also addresses the shifts in economic and financial balances of power.

The fourth category includes themes relating to sociodemographic “shifts” – for example, in connection with the need for healthcare, or how and what we eat.

 

Megatrends drive the global capital markets

Megatrends supply the model enabling thematic investing in a structural manner. The objective is to identify companies which are less dependent on short-term economic cycles and which generate long-term added value and higher yields. Because they are highly dynamic, many trends drive the global capital markets. Against this background, thematic investments may generate added value when added into a portfolio – and may set further trends for the future. Particularly in challenging times, it can help to think unconventionally and to look at the investment universe from a different viewpoint to identify potential new opportunities.

 

How is the potential of a theme evaluated?

First and foremost, an evaluation is based on the long-term potential of a theme. Megatrends will have a strong impact on our lives for decades to come. A theme must be sustainable in the long run – also structurally. Investors need to want to stay invested for the long term. Short-term trends or “hypes” are not relevant. In addition, investors need to have access to a broad investment universe. 

 

Advantages of thematic investments

Thematic investments offer the opportunity to profit from the companies of the future – as a rule, often before more traditional investors take advantage of these opportunities. A thematic approach also allows investors to invest according to their own values and preferences based on selected themes or trends. The strategy can also offer diversification advantages over industry-specific investments. There is also the prospect of participating in a dynamic which exceeds that of the “rest” of the economy. If the companies selected in thematic portfolios can expand in terms of corporate earnings, thematic strategies have the potential to generate attractive returns.

 

How to invest in thematic investments?

We offer thematic investments mainly in the form of certificates. With just the one transaction, investors not only gain rapid market access through the purchase of a participation product, but they also invest efficiently in a selected thematic index. Investors remain flexible throughout the investment period and do not need to make adjustments themselves. The dynamic and open-ended theme index ensures that the theme is permanently diversified, tracked transparently and that adjustments can be made to the composition.

 

What is the performance record of thematic investments?

Thematic investments aim to outperform the classic benchmark over the economic cycle. In the years prior to the pandemic, thematic strategies generally outperformed broad, global equity benchmarks. Last year’s performance, though, was more mixed. Based on the strategies that we launched, we observe that the likelihood of an outperformance increases exponentially with the lifespan of the product. This demonstrates the importance of careful selection of themes and investment approaches. On top of that, the Swiss economy is resilient and well-positioned for shaping the future. The qualitatively high-level, defensively oriented equity market offers attractive opportunities for long-term oriented investors.

 

 

Biographies

Eun-Kyul Koh is Head Structured Solutions & Investment at Bank Vontobel AG. She has a triple Masters in Management, with a focus on Finance (ESCP Europe). She started her career in 2007 at Merrill Lynch and Commerzbank in the structured products market Switzerland and subsequently in the Asian market in Singapore and Hongkong with Leonteq Securities. Eun-Kyul Koh has headed the Structured Solutions & Investment Team at Bank Vontobel in Zurich since June 2021 and is responsible for the continued expansion of client-centric investment solutions.

Michael Haupt is Senior Advisor Investment Strategies at Bank Vontobel AG. He has a Masters in European Management (M.A.) from the Institute of Technology of Wildau and is a Certified International Investment Analyst (CIIA). He has been working for Bank Vontobel AG since 2010 in a number of positions in Zurich and Hong Kong. He started his career with Partners Group in Zug. Michael is responsible for developing and marketing of thematic investments, of which Vontobel is one of the leading providers.