What is Thematics Asset Management?
Headquartered in Paris, Thematics AM is an affiliate of Natixis Investment Managers that specialises in global thematic equity investing.
Over the last five years there has been a huge amount of growth in thematic investing. It seems to have become much more mainstream. We have proven expertise in this space and a strong investment process which we wanted to capitalise on, so we launched the group and joined the Natixis affiliate line-up in December 2018.
Where do you see the investment opportunities?
We launched three standalone funds around our core investment themes, which include Water, Safety, and Artificial Intelligence (AI) & Robotics.
The Water fund is a relatively defensive, conservative, low beta portfolio. It invests in companies that participate in the provision of water utilities, pollution control and water infrastructure services.
Then, we have the slightly higher beta Safety fund, which invests in companies that offer products and services for the physical and digital protection of individuals, businesses and governments. Finally, we have the AI & Robotics fund, which has the highest earnings growth potential of all of our strategies, and also the highest beta; the Fund invests in companies that focus on the provision of products and services powered by AI and/or Robotics.
Over the last five years there has been a huge amount of growth in thematic investing. It seems to have become much more mainstream.
All three funds invest in 40-60 listed equity stocks globally. Each invests in a collection of markets that we believe have the potential to grow at a rate superior to that of the broader global economy, owing to the long-term secular growth drivers that underpin them. These drivers are fueled by four global primary forces that are transforming our world: demographic changes, globalisation, innovation and resource scarcity.
So, if we take demographic changes and how that plays into the Water strategy, one of our biggest opportunities is based around changing demographics in emerging economies. For example, around 350 million people in China are expected to move from rural to urban areas in the next 50 years. That clearly places a huge amount of strain on existing water infrastructure and drives the need, at the government level, to invest in the building blocks of urban water provision.
What is your approach to investing?
We have always professed to know a lot about little, rather than try to be a ‘jack-of-all-trades’ and know a little about a lot. Our investment philosophy relies on four pillars.
First, at the heart of what we do is looking for secular growth-driven companies to invest in. And by secular growth drivers we mean contributors to the economy that remain consistent over time rather than based on seasonal or cyclical trends.
Second, we are focused on defining investment themes and universes. Take our Water theme, for example. Water is a basic need, not only for human life but also for economic development. It is a limited resource with growing demands placed upon its provision to sustain demographic and economic growth. The strategy for our Water theme seeks to identify investment opportunities in the companies participating in the provision of water infrastructure, pollution control and demand efficiency products and services.
Third, we operate with an unconstrained investment approach. In other words, we don’t want to have to worry about market capitalisation, benchmarks and those types or artificial constraints that you can easily place on yourself.
Fourth, we do all of this as a responsible investor – one that is committed to ESG principles.
How do you integrate ESG into your processes?
ESG is a very important part of our risk control process and is consistent through all the strategies that we manage. We recently became a signatory of the UN Principals for Responsible Investment, which is one the world’s leading initiatives promoting responsible investments.
We use a negative screen to exclude parts of the investable universe on ethical grounds. This exclusion list includes controversial weapons, alcohol, tobacco and coal fired power generation. Furthermore, if you consider Water again, we also exclude companies that buy up water resources and sell them at inflated prices to farmers – so-called ‘Water Rights’ companies – as well as branded, packaged water businesses which we feel don’t meet the necessary sustainable development criteria.
In addition to engaging with selected companies in our funds, we also use ESG considerations when sizing positions to mitigate against potential risks in the portfolios. Through multiple resources, we vote all of our own proxies in the portfolios, seeking to incorporate ESG issues into ownership policies and practices.
What is the difference between a thematic fund and a sector-focused fund?
We recently became a signatory of the UN Principals for Responsible Investment, which is one the world’s leading initiatives promotingresponsible investments.
One of the key features of thematic investing is to not only find growth streams but, at the same time, have a diverse opportunity set in which to invest.
It is no good doing all the work to identify a theme, then finding out that all the stocks within that theme all have the same characteristics – namely that they all move in the same direction. That, in our minds, is the very definition of ‘sector funds’, rather than a thematic opportunity, because you simply do not have a way to diversify against risk.
On the other hand, within our Water fund for example, we have some very cyclical opportunities. Some of the volatility of those business models can be offset by getting exposure to companies within the utility, waste management of water monitoring and testing spaces. It means we can create a bar-bell type portfolio, which gives us a more stable profile in the market.
All investing involves risk, including the risk of capital loss. This material is provided for informational purposes only and should not be construed as investment advice. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of Thematic Asset Management of November 2019. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecast, and actual results may vary.