It’s been a difficult few years for thematic investing, faced with headwinds from the growth-to-value rotation, underperformance of everything outside the `Magnificent Seven’, and the harsher reality of war. Many thematic portfolios have subsequently underperformed wider markets over the past three years, producing outflows as investors sought higher returns elsewhere.
But the longer-term outlook is much rosier, providing that investors can keep the faith in the undisputed structural themes, say Robeco’s thematic experts. One of the challenges with trying to beat benchmarks, however, is that the two global indices most commonly used, the MSCI World and the S&P 500, are dominated by just a handful of tech stocks – the so-called Magnificent Seven of Alphabet (owner of Google), Apple, Amazon, Meta Platforms (Facebook), Microsoft, Nvidia and Tesla.
Six of the seven have market caps above USD 1 trillion. They more than doubled in value in 2023, partly on the back of excitement over the potential for AI, accounting for more than 70% of the total returns of the MSCI World. This was even more pronounced for the MSCI USA Index, where they generated more than 95% of returns but just 26% of the index weight itself. The MSCI’s factor indexes, which have little or no exposure to these tech behemoths, significantly underperformed. 1
Over at the S&P 500, the Mag7 is now 29% of the index, the highest concentration of tech stocks in its history, accounting for more than 80% of all returns.2 It means portfolios investing in other companies are essentially trying to outperform the Mag7 rather than an index.
Sustainable themes: water
Take for example our Sustainable Water Equities strategy, which celebrated its 22nd anniversary in 2023. It invests in solutions that address global challenges related to scarcity, quality, and allocation of water. The strategy was able to significantly outperform global markets between 2019 to 2021 by more than 15% cumulatively, because investments from governments and corporates in water were increasing.
Improving water quality and availability is a natural growth area and a structural trend that will only become more important as demand for clean water increases worldwide. The funding for water investments from the US Infrastructure Investment and Jobs Act (2022-2026) alone is worth many billions of dollars, as shown in the chart below.
![staying-the-course-the-magnificent-appeal-of-thematic-investing-1.jpg](https://images.ctfassets.net/tl4x668xzide/A17PB5iwzwft4fJI1TT9T/f3f3f76193790e848a39d3f980c2550a/staying-the-course-the-magnificent-appeal-of-thematic-investing-1.jpg?fit=pad&w=800&h=475&f=center&fm=webp)
Source: US Congress, Robeco, March 2024.
However, the portfolio unsurprisingly has no exposure to the Mag7 or any AI stocks, and so underperformed global markets in 2023. Across the peer spectrum, similar strategies with higher allocation to utilities notably outperformed in the down market of 2022, but lagged in the rebound of cyclical industrial companies from the water space in 2023.
Digitalization does better
This is not a problem facing our Global Consumer Trends Equities strategy, which follows three themes: the digital transformation of consumption, the rise of the middle class, and health and well-being. As part of the digital theme, it does have exposure to AI and the Mag7.
The strategy performed well in 2023, (up 28.42%) and so far in 2024 (up 9.48%), following difficult years in 2021 and 2022 when growth stocks were in the doldrums. It has enjoyed an annualized return of 15.4% after fees since it began in 2009, which is far above the category average (10.46%) and the MSCI World Index benchmark (11.54%).3
But it remains a long-term approach, across business cycles that can last decades. “Thematic strategies invest into a very focused part of the market; the aim is to capitalize on long-term structural trends and outperform broader markets over a full cycle,”” says Ralf Oberbannscheidt, Head of Thematic Investing at Robeco.
“Unlike a global or regional equity strategy which will overweight or underweight specific regions or sectors and aim to slightly beat the benchmark in every single year, thematic strategies will by nature show strong outperformance in some years, but can also post meaningful underperformance versus global markets in other years. The key thing is achieving outperformance over the full cycle.”
時刻把握我們最新市場觀點及電子報
接收荷寶電子報,率先閱讀最新洞察分析,並構建最綠色的投資組合。
Decarbonization: A real long-term theme
It's also vital to focus on whether a trend is truly going to last, or become another fad. Few would doubt that the move away from fossil fuels toward renewable energy is the ultimate theme if the world is to combat global warming. An estimated EUR 5 trillion in investment is needed every year to meet net-zero goals. But the theme still remains vulnerable to the vagaries of market sentiment over the shorter term.
Our Smart Energy Equities strategy directly invests in the energy transition, from renewables to the grid infrastructure, power management and energy efficiency solutions. The Smart Materials Equities strategy focuses on the minerals and processes necessary to achieve wider electrification, such as lithium and highly specialized manufacturing processes that produce batteries for electric vehicles, for example.
The EV market is virtually guaranteed to grow if governments make good on promises to ban new fossil fuel powered cars by the 2030s. The expected rise in battery demand is shown in the graph below.4
![staying-the-course-the-magnificent-appeal-of-thematic-investing-2.jpg](https://images.ctfassets.net/tl4x668xzide/7ksD1HpojNYduLlPNK0ree/c54e7dfc3ae21e198fa066591c153069/staying-the-course-the-magnificent-appeal-of-thematic-investing-2.jpg?fit=pad&w=800&h=463&f=center&fm=webp)
Source: BloombergNEF.
Thematic: a popular alternative
“Thematic investing has become a popular alternative to mainstream investing, and especially during the Covid pandemic, when investment solutions addressing meaningful and appealing investment narratives, often with a sustainable angle, gained a lot of traction in the market,” Oberbannscheidt says.
“The pandemic, increased geopolitical tensions and an aggressive interest rate hiking cycle all led to more volatility causing investors to focus more on the short rather than the long term. As this coincided with a turnaround in the relative performance of thematic investing, outflows were the result.”
A patient and disciplined approach
This was picked up in a study by Morningstar, which rates investment products according to their sustainability and other factors, including Robeco’s. The study stated that investors need to be “patient and disciplined and a buy-and-hold thematic strategy is more likely to deliver superior outcomes for most investors”. Holding one’s nerve of course is easier said than done when markets are spooked by war.
Many are doing so, however. The Broadridge PIP Monthly Barometer of March 2024 showed that the number of investors intending to increase their allocations toward sector and theme equity has remained positive since September 2023. In February 2024, 8% of respondents said they intended to raise allocations within the next 12 months. This is shown in the chart below.
![staying-the-course-the-magnificent-appeal-of-thematic-investing-3.jpg](https://images.ctfassets.net/tl4x668xzide/2yVnEkGg4VD3tRHCN64YTq/120f6e3deb6fc8fef201dda0ff97cf89/staying-the-course-the-magnificent-appeal-of-thematic-investing-3.jpg?fit=pad&w=800&h=354&f=center&fm=webp)
Source: Broadridge PIP Monthly Barometer, March 2024.
“In the end, all thematic strategies follow a similar philosophy of identifying long-term structural themes and providing solutions driven by the overarching megatrends of technology, socio-demographics such as an aging population and rising middle class, and sustainable developments such as the need to combat climate change,” says Oberbannscheidt.
“These themes are undisputed, and so we remain confident they can provide outperformance over the full cycle. We have the expertise to identify the long-term winners in our various themes, though it can be frustrating in the short term when the hard work seems unrewarded.”
“So, we’re sticking to our refined processes of stock selection and ongoing portfolio management. It’s a marathon, not a sprint, and finishing a marathon is magnificent!”
Footnotes
1https://www.msci.com/www/quick-take/magnificent-seven-drove-the/03914829683#
2https://www.forbes.com/sites/greatspeculations/2024/01/22/2023-in-review/
3Performance figures as of 29 February 2024 for the I EUR Class, net of fees. Source: Robeco, MSCI. The currency in which the past performance is displayed may differ from the currency of your country of residence. Due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. The value of your investments may fluctuate. Past performance is no guarantee of future results. Returns net of fees, based on gross asset value.
4Transport-related battery demand is based on Bloomberg NEF’s Long-Term Electric Vehicle Outlook 2023 Economic Transition Scenario. Stationary storage battery demand through 2024 is based on BNEF’s 2H 2023 Energy Storage Market Outlook, and a compound annual growth rate assumption for 2031-35.
全球多元趨勢投資
荷寶精選趨勢投資策略的一站式平台
免責聲明
本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。