As appetite for thematic investing stays strong, a “3D Reset” is reshaping the market landscape, as well as portfolios.
According to Schroders, the original themes of demographics and decarbonisation continue to persist. In addition, research by the UK fund house has identified deglobalisation to add to the mix.
“We identified several criteria for a theme to be useful in longer-term investment, including (being) structural in nature, durable/avoids fads, has a valuation upside and neither too narrow nor too broad,” said Lesley-Ann Morgan, Schroders’ global head of pensions and retirement.
The theme of ageing demographics reflects these features. To confront a shrinking working age population and its impact on capacity for future growth, Morgan said companies looking to protect profits and margins will have to invest in technology to increase productivity.
At the same time, a larger base of elderly people will require more healthcare services providers and products to serve them, she added.
With decarbonisation, an acceleration in transition efforts is mirrored by a growing number of companies increasing pledges to reduce carbon emissions. “Investment in sectors such as clean energy and electrical vehicles has seen rapid growth in recent years and will weigh on the long-run demand on oil,” explained Morgan.
Meanwhile, deglobalisation has made allocations between geographic regions more important than ever, Morgan added.
“In response to supply chain disruptions during Covid, many companies are planning on diversifying their production and bringing it back home, by ‘reshoring’, or closer to home, by ‘nearshoring’, to prevent geopolitical risks from impacting supply chains so severely again.”
‘3Ds‘ in focus
According to Joven Lee, a multi-asset strategist at Schroders, the “3Ds” are all structural in nature. “There could be different angles to seize investment opportunities.”
To monetise the expected labour shortage over the coming years as the larger population of Baby Boomers retire and Millennials move past entry-level roles, the healthcare sector stands out.
In particular, Lee believes, healthcare service providers, medicinal technology and even companies operating senior living facilities should thrive.
When it comes to the decarbonisation theme, the aggressive pursuit of net zero emissions has led to a boom in funds flowing to sectors such as clean energy, energy storage and sustainable infrastructure – spurred by many asset managers launching new funds.
Further, as moves towards deglobalisation start to unfold, investors can tilt towards certain regions and sectors.
