Investing in the future, not the past

Conor Murphy, Director, Davy Private Clients

In an era of increased market volatility and disruptive technology, many investors have started to question traditional approaches to investing. The recent pandemic has made this challenge even more pronounced for individuals who are trying to grow capital reserves through pension and personal savings.

The standard approach, which utilises asset-allocation benchmarks, is too focused on past performance particularly from assets with little chance of repeating this performance.

As a consequence, more investors are turning to more dynamic ‘thematic’ investing strategies which aim to profit from the new prevailing global long-term trends.

Thematic investing is a top-down investment approach that allows investors to gain exposure to macroeconomic themes in order to get a slice of the ‘disruption pie’, which is typically implemented through managed funds or private & public equities. These provide diversification and an opportunity to invest in areas that will shape the world of tomorrow, removing the concentration on benchmarks. The traditional approach to investing usually revolves around following or deviating from, a benchmark to increase returns or mitigate risk. The issue with this approach lies in the assumption that past success will continue to provide future success.

In contrast, thematic investing aims to capture the upside of disruptive growth opportunities by investing in forward-looking companies.

Socially Responsible Investing (SRI) and the impact of Climate Change are undisputedly attractive as investors and consumers demand sustainable products and services. The prevalence of climate disruption will create difficulties for some business models and opportunities for others as the climate change theme aims to participate in the upside of this movement.

Healthcare is attractive as life expectancy increases and this fuels a new paradigm of public and private sector collaboration to transform the financing and delivery of healthcare. The possibility of further pandemic outbreaks in the future and the mitigation of same strengthens this investment case.

In a world of increasing connectivity and where data has been described as the ‘new gold’, the emphasis on controlling threats through Cybersecurity is growing at a rapid pace. Artificial Intelligence and Robotics based technology have been referred to as the ‘next industrial revolution’. These are driving the next wave of innovation that will provide solutions to global issues including low productivity, population growth and global warming.

There are always downside risks to investing. Investors can invest in a sector that does not perform as anticipated. There can be periods when these investments may underperform the global equity markets. Therefore, Thematic investments are not suitable for investors who cannot tolerate deviations from global equity benchmarks.

Investing led by a goals-based financial plan is at the core of our investment philosophy. Thematic investing enables you to utilise your own expertise and experience to tailor your investments that can be both rewarding and responsible. If you are interested in incorporating thematic investments, why not contact us today to start the conversation.

T: 021-4251420 E: conor.murphy@davy.ie

WARNING: Past performance is not a reliable guide to future performance. The value of investments may go down as well as up. Returns on investments may increase or decrease as a result of currency fluctuations. Forecasts are not a reliable guide to future performance.

The information in this article does not purport to be financial advice and does not take into account the investment objectives, knowledge and experience or financial situation of any particular person. You should seek advice in the context of your own personal circumstances prior to making any financial or investment decision from your own adviser.

J & E Davy, trading as Davy and Davy Private Clients, is regulated by the Central Bank of Ireland.