The major shift towards thematic investing continues unabated. Data from Morningstar shows that over the three years to March 2021, assets under management for thematic funds have more than tripled to USD 595 billion. This accounted for 2.1% of all assets invested in equity funds globally, up from 0.6% 10 years ago. Europe is the largest market, with 51% of global assets.
The survey shows both wholesale and institutional investors are keenly interested in thematic funds, with nine out of 10 investors expecting thematic investing to benefit long-term performance, while three quarters are using thematic funds to access strategies with a focus on sustainable investing.
In terms of asset classes, wholesale appetite centres primarily on equity thematic investing strategies followed by fixed income strategies. Institutional investors invest also mainly through equities, followed by private markets, the survey found.
A preference for ‘sustainability’ and ‘disruption’
Investors’ preferred themes for thematic investing, which transcends geographies and business sectors, were:
- Sustainability: namely, investing around broad sustainability related themes such as the UN’s sustainable development goals (SDGs), and in climate change solutions and renewable energy
- Disruption: investing in robotics & artificial intelligence, disruptive technology, and healthcare innovators.
BNP Paribas Asset Management believes its offering is aligned with these investor preferences. Our recent white paper on mega trends for the 21st century identified a number of major trends that are set to shape our world as it emerges from the pandemic. We believe these create opportunities to capitalise on change and disruption.
The paper sets out our expectations and lists the main trends that investors should consider which includes these selected themes:
We believe thematic investing requires a targeted approach away from broad-brush strategies and with attention centred on business cases, in-depth knowledge of the underlying assets and active engagement.
We apply active management where the investible universe is broad enough to create alpha through stock selection. For narrower investment themes, passive investment strategies can be preferable combined with active engagement with portfolio companies.
We also recognise the appeal of an innovative ‘mix-and-match’ approach combining a series of themes to create a custom mandate.
Factors driving demand
The growth of thematic investing looks set to accelerate, driven by upcoming regulatory change, including the integration of ESG preferences in investor choices under MiFID II as well as demand from institutional investors.
Here are some highlights from the survey:
- 88% of wholesale and 36% of institutional investors already use or plan to use thematic strategies
- 90% of investors believe that thematic investing has a positive impact on long-term performance
- For 76% of investors, the main goal for using thematic investing strategies is sustainability and ESG, followed by the ability to enhance investment returns, include a more innovative or disruptive investment approach, or increase diversification (see exhibit 1).
Investors increasingly want investments to have a positive impact on the world. Indeed, sustainability and an ESG focus are part of a broader trend in the asset management industry. This is being fanned by a supportive regulatory and public policy backdrop that includes initiatives such as
- Sustainable Finance Disclosure Regulation (SFDR)
- MiFID II
- EU taxonomy
- EU Green Deal
- The US administration’s prioritisation of achieving net zero emissions.
Source: Greenwich Associates, BNP Paribas Asset Management
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.