The performance of thematic funds during Covid-19 showed why thematics is a valid investment approach, according to the latest podcast for FTAdviser Talking Point.
Speaking as a guest on the podcast, Kenneth Lamont, a senior manager research analyst at Morningstar, said: "I believe that the magic genie is out of the bottle. When Covid happened, we [were seeing] some thematic funds, give sort of three-digit returns when the MSCI World would give you perhaps 12 per cent over that same period. So there was for me an element of validation here.
“Some of the criticisms of thematic investing in the past are that you are just paying more for a traditional sector fund exposure, and for me, really, many of these funds justified themselves.”
He said they showed that they had very distinctive risk-and-return drivers that were being targeted over this period.
“And so I think [the performance was impressive] over this period. Clearly, there are negative sides to this too, but it really pushed them [to be considered where they had not been considered before]. So there was a new audience.”
Lamont added that a driver of the renewed demand for thematic funds has been that “many investors just don't feel that the traditional sector and geographic frameworks adequately capture the risk and return in the highly globalised, highly interconnected, modern world that we live in”.
Thematic funds have been around for a long time, but David Docherty, investment director, thematics at Schroders, says the renewed interest will continue to grow, driven by investors’ desire for empowerment.
Docherty said: “It’s part of that whole notion of empowerment… when investors have an intellectual or emotional connection with something, they see no reason why they can't invest with those considerations in mind.
“And I think the industry has responded to that. Hence, the growth that we've seen. When we meet advisers, they kind of want to know, as they wrestle with thematic investing, what our philosophy is. I can only imagine they are asking the same question of other portfolio managers.”
To understand more about how thematic investing has evolved in the retail market and how to build a thematic investment portfolio, listen to the podcast above.
ima.jacksonobot@ft.com
