Ex-Pictet group moves into thematic funds

Asset Class in Focus

Ex-Pictet AM managers co-founded a firm under Natixis IM and have launched similar thematic products.

Earlier this year, Natixis Investment Managers established Thematics Asset Management, a Paris-based affiliate that will focus on thematic strategies.

The six co-founders all came from Pictet Asset Management. They include five portfolio managers, who previously co-managed thematic strategies at Pictet AM, Arnaud Bisschop, Paris-based co-founder and senior portfolio manager, told FSA during a recent visit in Hong Kong.

The firm has since launched three strategies similar to those of their former employer. For example, Bisschop, who was previously Pictet AM’s co-manager of the Water Fund, is also now managing Thematics AM’s Water Fund. Frédéric Dupraz, who previously co-managed the Pictet Security Fund, will now be managing the Thematics Safety Fund.

The third strategy is the Thematics AI & Robotics Fund, which is co-managed by Nolan Hoffmayer, who was previously Pictet AM’s co-manager of the Digital Fund.

Thematics AM founders

Arunaud BisschopCo-manager of the Water strategy
Frédéric DuprazCo-manager of the Safety strategy
Nolan HoffmayerCo-manager of the AI & Robotics strategy and the Safety strategy
Simon GottelierCo-manager of the Water Strategy
Karen KharmandarianChairman, CIO and co-manager of the AI & Robotics strategy
Mohammad AmorManaging partner and head of development

In total, Thematics has rolled-out four products – the last being the meta strategy, which combines all three thematic products in an equally-weighted manner, Bisschop said.

The funds are only available to professional investors in Asia. The firm plans to debut another themed product by the end of the year, according to Bisschop, but he declined to name the strategy.

An additional three portfolio managers are expected to be hired.

Same but different? 

The investment universe of thematic funds is usually small, so the portfolios tend to have similar holdings, according to Darius McDermott, managing director at Chelsea Financial Services and Fund Calibre.

Because of that, he said in a recent head-to-head analysis that the Allianz and Pictet Water funds have similar individual holdings. For example, both products have the same seven companies in their top 10 holdings.

The main difference, however, is how concentrated each fund is: the Allianz fund has 24% of its assets in its top three holdings, which compares to only 14% in the Pictet fund.

For Thematics AM’s Water Fund, eight of its top 10 holdings can be found in the Pictet fund, according to their fund factsheets.

Top 10 holdings (% allocation)

Pictet Water Fund

Thematics Water Fund

Danaher Corp

5.02

Xylem

3.8

American Water Works

4.72

Danaher

3.7

Xylem

4.41

Aqua America

3.5

Thermo Fisher Scientific

3.74

Pool

3.3

Aqua America

3.48

American Water Works

3.3

Ecolab

3.43

Thermo Fisher Scientific

3.1

Veolia Environment

3.39

Smith (AO)

2.9

Waste Connections

3.34

Waste Connections

2.9

Waste Management

3.19

Waste Management

2.7

Severn Trent

2.94

Veolia Environment

2.5

Total (Top 10)

37.66

Total (Top 10)

31.7

Source: Fund factsheets

However, Bisschop believes that his firm’s offerings will be differentiated.

“We will not be implementing the purity aspect in all of our processes, [which they had done at Pictet],” Bisschop said.

Pictet thematic funds apply a “purity” concept, which requires investments to be linked to the percent of company revenue dedicated to the theme.

Instead, Thematic AM will look at the “materiality” of a business toward a specific theme, which means investment is not linked to revenue derived from the theme, but is aimed at companies the manager believes will be leaders in a specific business.

For example, Bisschop said that its water strategy has a position in Japanese chemical company Toray. Although its main business is in chemicals, Bisschop believes it is one of the leaders in membrane manufacturing in the world for water applications.

“We believe they have a leadership position in the water space, so we include them. Within Pictet AM, we would not because they are not above the purity threshold.”

Letting go of the purity concept allows expansion of the investment universe, he added. For the water strategy, the fund’s investible universe is around 300 stocks.

Sector risk

One of the main risks of funds with specific themes is that there is not much flexibility to adjust when investment opportunities evolve, Pierre DeGagné, Singapore-based head of fund selection at DBS Private Bank, told FSA previously.

“Broad themes, such as environmental innovation, for example, are great. But I generally avoid buying one specific area as there isn’t flexibility or adaptability to change as investment opportunities evolve,” he said.

Bisschop said his firm hopes to avoid sector risks by diversifying investments.

“Although our themes are focused, we want to be diversified. We do not want our funds to be driven by the same things, so we also look at correlations,” he said.

The firm’s safety-themed fund, for example, doesn’t invest only in technology companies. “Technology for us is not a theme, it is a sector, so you potentially have sector risk if you are too concentrated on this.”

He said that 50% of the safety fund invests in the cyber-security category and the other half in a category he calls “real life” — companies that make people physically safe.

One example is global pest control and hygiene company Rentokil Initial, which is one of the firm’s top 10 holdings, according to the fund factsheet.

Top 10 holdings (% allocation)

Pictet Security FundThematics Safety Fund
Thermo Fisher Scientific4.69Thermo Fisher Scientific4
Palo Alto Networks3.75Cintas Corp3.9
Global Payments3.45Fidelity National Info Serv3.9
Ecolab3.45Tansunion3.4
Visa Inc-Class A3.43Interxion Holding3.2
Fidelity National Info Serv2.92Fiserv3.1
Equinix2.87MSA Safety3.1
Total System Services2.86Rentokil Initial3.1
Paypal Holdings2.86Visa A3
Fiserv2.78Halma2.9
Source: Fund factsheets

The firm also takes into consideration ESG risks, according to Bisschop, adding that it uses third-party ESG data providers as well as the research capabilities of Natixis affiliate Mirova, which focuses on sustainable investments.

Bisschop noted that although ESG data is used in the investment process, the funds are not marketed as ESG products.

“We are not saying that these funds are ESG, SRI or impact products, but our thematics approach is ticking the box of [ESG integration], and with Mirova’s capabilities, we can also provide impact data to investors.”


It is early days for the Thematics AM funds

Source: FE Analytics. In US dollars. Note: MSCI AC World provided for comparison purpose only. All four funds, which invest globally, do not have benchmark indices.

 

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