The creation of Thematics AM with 6 experienced portfolio managers, was driven by a desire to develop specific expertise focused on a particular management style, combining both flexibility and robustness. For us, thematic management is the best way to capture the secular growth of markets. We started from a blank page to implement what constitutes our DNA: our investment process.
We are convinced that thematic investing is an attractive way to achieve sustainable growth. At the same time, thematic investments translate complex evaluation processes into strategies that investors can understand. Our claim: Investors must know what they are investing in.
We have identified specific themes that are growing faster than the broader global economy and that remain consistent over time rather than based on seasonal or cyclical trends. Those themes include water, artificial intelligence & robotics, the subscription economy and safety.
Our services are aimed at any types of investors. Our objective is to outperform the markets, but do not follow a strict benchmark.
Thematics Asset Management ESG approach
At Thematics AM we don’t necessarily believe that a line needs to be drawn between the worlds of thematic investing and ESG investing. What we want to do is fully integrate ESG into our process, so that it’s ingrained in our risk management methodology. We do that by integrating ESG in three key phases of our investment process. We’re also working in partnership with Mirova, one of the acknowledged European market leaders in ESG investing, to get good quality ESG data on specific companies and the portfolio as a whole. Directionally, we would also like to provide our clients with an analysis of the impact of the portfolio relative to the United Nations Sustainable Development Goals (SDGs).
As strong believers in secular themes that are shaping the world of tomorrow, adopting a sustainable and responsible approach fully subscribes to our thinking. Increased urbanization, demographics, digitalization, rising living standards in addition to the necessity to adapt to climate change all present investors with opportunities to benefit from new areas of growth. These are some of the long-term structural shifts that we see today and that we anticipate will continue to change the way we live and work in the future. When considering a long term investment horizon it is essential to also consider environmental, social and governance factors that are likely to impact a company’s risk profile, the obvious reason being the longer the time horizon the more likely it is for those risks to materialize over time. We also believe that ESG integration leads to better informed investment decisions, helps mitigate portfolio risk and supports long term value creation for asset owners.
At different levels all the themes that we focus on are impacted by the primary forces that shape our thinking: demographics, innovation, globalization and scarcity.
Safety, by definition embodies the need for a safer and better world. The need to protect people on earth is deeply rooted in creating environmental security, social balance and governance that leads to virtuous activity and sustainable wellbeing. To provide a concrete example, climate change holds many safety implications. In the US, while climate change is extending the now familiar drought situation in California, decades of poor forest and land management have rendered the state a tinderbox. More and more Californians are living in remote, fire-prone areas of the state, doing too little to make their houses and communities resilient in the face of fire danger. With human lives at stake, demand is finally increasing for the technologies and services that can help people to find secure locations when their lives are threatened and to keep basic services operational ‘when the lights go out’.
Water has perhaps the longest-term secular growth themes underpinning it. Each of these long-term secular growth drivers are, by their very nature, fifty to a hundred year narratives.
With Water thematic, we are investing in the only true, life-sustaining resource – via a group of business models that cover the municipal/utility, agricultural, industrial, residential and commercial markets. Simply put – it touches everyone on the planet, in all walks of life, and in every area of the economy from construction to mining through semiconductor production to the manufacture of electric vehicles. In simple terms, there is nothing esoteric about the delivery of water to its end user; it requires the resource itself, energy, but above all, infrastructure – in all of its many and varied forms. In other words – physical assets are crucial in delivering and reprocessing the world’s most precious, but perhaps most underappreciated resource.
If you have taken recently a hard look at your credit card statement, it’s increasingly likely that you’ll find a few monthly or perhaps even annual subscriptions to a range of services that you use regularly. You most likely recognize that you are paying for a video or music streaming service but you can be pretty certain that these are not your only subscriptions. Over the last decade, we have seen a constant and steady increase in the number of industries and companies that use subscription services to monetize their offering and, in more cases than not, this has been a success. The business model is quite easy to understand. Instead of creating a hit product that will be ‘sold once’, you offer ongoing value such as new content, more personalization, or perhaps access to updates which customers pay for via a monthly or annual subscription. Companies end up building stronger relationships with their customers and successful companies enjoy high renewal rates. And this matters a lot. High renewal rates essentially lead to better revenue visibility (if every consumer renews at the same price, revenue will be at least as high as in the previous year) which in turn means that the company can commit capital to research and development spending with more confidence, offering additional and better services to the customer. This is the virtuous circle that both companies and customers benefit from.
Subscribing to a service means you don’t actually own the product. Recent surveys suggest that 68% of adults no longer value ownership and don’t necessarily think that ownership defines what or who they are1. However, what we do value is the ‘usership’ and the experience. But what does this actually mean? To use a simple example that most of us can relate to, we don’t particularly care about owning a DVD, but we do value the experience of watching the movie. There is absolutely no need to buy a DVD if you can simply watch it on a video streaming service. Furthermore, 70% of adults say 1 that the maintenance and costs associated with ownership of material possessions is burdensome and that they would rather subscribe to a service that takes care of these items.
As businesses have come to recognize the value and power of data, the adoption of subscription-based models is recognized as an increasingly attractive business model. Think about it, when a customer signs up for a new subscription, the vendor enjoys recurring revenues that are highly predictable, and usually seen as ‘high-quality’. With more confidence on the revenue side, expenses can be budgeted more precisely with R&D in particular being a big beneficiary. With lower upfront costs, corporations are also able to extend their target market to customers for whom the cost was too high in a ‘standard’ model. In a subscription model, you also create stronger relationships with your clients.
As a firm, we spend a fair amount of our time qualifying and quantifying thematic opportunities, this is what we refer to as setting thematic boundaries. Firstly, the theme identified needs to be underpinned by secular growth drivers (or primary forces) that demonstrate persistent above average growth that is not necessarily fully appreciated by the market. The subscription economy is clearly benefits from technological innovation (digitalization makes it easier to subscribe, big data allows for greater customization…), shifting consumer preferences (convenience, affordable access to a service, declining value of ownership…) and sustainability (shifting away from a buy and waste approach, from a sales model to a service model…). Secondly a theme needs to be diversified (offering access to multiple verticals of the economy) yet focused (identifiable and quantifiable). The subscription economy impacts industries ranging from the telecommunication, media, software, utilities, healthcare sectors through to the retail sector. Finally, we identify companies that have both material exposure to the subscription economy in addition to companies that demonstrate leadership positions within segments of our theme.
With the right supporting demographic, technological and sustainability drivers in place, we believe the subscription economy is poised to see further, accelerating growth. Consumers and corporates increasingly see it as a model that is a better fit with their consumption patterns. At the same time, vendors also benefit from the model in several ways and are keen to offer more of their services under subscription. We are convinced that subscriptions will be applied to more services in the future while their utilization will also increase.