Early birds thrive in thematic investment

Recognising the world’s structural changes early and building a portfolio to capitalise on them is the key to thematic investment success.

Thematic Share Fund available to Australian investors.

“It really goes down to identifying the biggest structural changes happening in the world over the next decade … and designing a portfolio that plays into those big themes,” he says.

The inherent problem is that by the time a theme hits the cover of a newspaper, the assets have become too expensive. To unearth truly fresh trading ideas, the fund avails of Lazard’s 80-strong army of analysts, who talk to more than 4000 companies annually.

“It’s quite amazing to be able to sit down with management from companies all around the world and tap their views,” Wreford says.

“As a result, we are building our view of the world bottom up, rather than imposing a top-down view.”

There’s no more topical an example of the ‘big theme’ than artificial intelligence (AI), exemplified by the race to build the perfect ‘chatbot’.

Wreford refers to “AI at a reasonable price”.

“It’s tempting for investors to chase any company that puts AI in its title,” he says. “While it’s exciting, investors need to approach this with a suitable degree of cynicism as well.”

The fund’s portfolio includes the New York listed ‘intelligent’ buildings specialist, Johnson Controls International. The company’s operating system, Open Blue, can do everything from turning the aircon and lights off to managing security.

“We envisage buildings talking to each other and sharing how they become more efficient,” Wreford says.

While Microsoft and Google duke it out for ‘chatbot’ supremacy, Wreford says the likely winners are big cloud platforms (including Amazon) that already handle copious amounts of data.

Companies with proprietary data are also likely beneficiaries, such as the Dutch-based Wolters Kluwer which owns one of the world’s biggest legal databases.

Rather than having a junior lawyer pore for days over legal precedents, a subscribing law firm could apply AI and get it done in minutes.

“AI will turn many clerical jobs into the 1950 equivalent of the typing pool,” he says. “Jobs will migrate up the value chain and if you don’t follow that you will be left behind.”

Highlights

■ Our primary source of alpha is structural change - we capitalise on this through the successful identification of themes which benefit from long-term drivers, and the population of these themes with relevant stocks.

■ Key differentiators vs other generic thematic strategies: the team creates its own differentiated proprietary themes, themes evolve over time, rigorous implementation in terms of stock fit to theme, disciplined approach to valuation.

■ Our Global Thematic strategies are style agnostic rather than embedding a permanent growth or value bias. Style has not been a significant driver of returns for the strategy. We feel this is a key differentiator vs peers.

■ We believe our thematic approach is a natural fit for investors seeking a sustainability solution, considering risks and opportunities at every stage of our process.

◾ Provide regular income and positive environmental and social benefits

3 months: 5.90% (vs 3.95%)

1 year: -10.93% (vs -12.52%)

◾ Can perform better than conventional bonds

3 years: 6.55% p.a. (vs 6.22%)

5 years: 10.37% p.a. (vs 9.25%)

Contact: 131 551 (Australia-wide),

+61 2 9995 3777 (Overseas), zurich.com.au

At any time, the fund is invested in about 100 companies, across 8-12 themes. The managers adopt a ‘style agnostic’ approach, which means there’s no bias to value or growth stocks or particular geographies.

“Clients appreciate it’s an allweather portfolio that should do well in different market environments,” Wreford says.

■ Managed by a highly experienced Thematic team with an average of 25 years industry experience, we offer a proven approach to long-term investing with a strong track record of outperformance.

Key Points

The economic contribution of Western Australia’s mining sector to national prosperity is long held and well known, but the trends on show in the mining space in 2023 defy even those seen during previous booms.

At the centre of it all right now is lithium, a key component of the EVs needed to transport the world in emissions reduced future.

It may surprise to hear that WA-focused specialist investment manager Precision Funds Management is looking beyond lithium stocks.

The firm, which has unique insight into the resources opportunities on offer in WA, has cast its expert eye to materials and services with a little froth