A themed approach to adding alpha

Sponsored by Amundi

In the search for investments that bring another layer of performance, thematic funds have the potential to offer investors alpha over the long-term.

Vafa Ahmadi, Amundi

From education and disruption to ageing and well-being, favouring themes where the fundamentals are focused on much more than a single sector can give investors an attractive long-term investment option.

“A broad definition of the investment universe is good for diversification and lowers sector risk. Fuelled by convictions, portfolio construction in this way is also able to adapt to economic cycles and market regimes,” said Vafa Ahmadi, head of global thematic equities at CPR Asset Management, the boutique investment arm of Amundi.

Being part of a firm specialising in thematic equities, his goal is to look beyond a constraining reference index for the extra alpha that portfolios crave.

The key is not to follow a trend, he explained, but rather identify structural trends able to generate long-term growth – irrespective of economic conditions and events.

 

A scalable range to seize tomorrow’s growth, today

Multi-pronged

According to Ahmadi, thematic investing offers three main benefits for investors.

The first is an ability to be more patient with their portfolio. “If investors know the story behind where the performance is coming from, then they tend to be more loyal to the strategy, even if performance is suffering in the short-term,” he explained.

In short, by choosing and understanding the specific theme, there is a greater likelihood of an investor remaining resilient during difficult market times.

An ability to create what Ahmadi calls “structural alpha” is another core attribute of investing based on sweeping changes shaping the world around us.

“We avoid fashionable ideas that often only last a short time,” he added. “Instead, we aim to identify and bring the growth that we expect long-term trends to generate.”

Take ageing, for example. One of the first funds CPR AM launched was based on the global population getting increasingly older. Given the seemingly irreversible nature of this megatrend, and its complete lack of correlation to trade wars or other economic or geo-political event, the objective is to choose sectors and stocks that can benefit from exposure to this trend, after assessing their sustainability over time.

The firm’s Silver Age strategy, incepted in 2009, has outperformed the MSCI Europe by over 30%, net of fees, said Ahmadi. A similar story of success can be seen in two more of CPR AM’s strategies – Global Disruptive Opportunities and Education – compared with their benchmarks the MSCI World and the MSCI ACW Index, respectively.

“While equities investing is about backing general GDP growth, taking a thematic approach provides an additional engine,” said Ahmadi.

This also helps to highlight a third string to the bow of thematic portfolios: a unique diversity away from a traditional equity fund.

“We cannot say we are de-correlated, because ultimately we are an equity fund, but the nature of how we back a theme is not to rely on the more popular vanilla stocks to drive performance.”

The research and stock selection processes to define eligible equities involve both a top-down and bottom-up approach. Together, they look to blend a vision of what’s to come with clear-cut data to support that.

Reshaping the approach to growth

Key to delivering alpha over the longer term, said Ahmadi, is the discipline and conviction to stay invested in the universe of stocks once they are chosen.

“So, if we invest in disruption, we will not look to buy a traditional oil company, as we do not see this as relevant to the longer-term nature of the theme.”

This is also a way to stay relevant within the changing nature of asset management. No longer is there simply a bi-dimensional world of risk and return in which the fund industry used to thrive. As the concept of values has risen to the fore, investors are demanding financial alpha that is sustainable in all ways.

“We are more and more conscious about how we can help investors do good, especially through environmental and social issues. Thematic strategies enable us to clearly show the values we can share and contribute to,” added Ahmadi.

To find out more about the themes that define the present and shape the future, visit https://trendsformative.com/

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