Fund buyers prefer long-established themes because they are wary of the hype associated with newly-launched thematic funds.
Darius McDermott, investment adviser to the VT Chelsea range of multi-manager funds, said: “AI right now is full of hype. These products often get launched at the peak of the market cycle, so we are careful. But we do invest in thematic funds, such as the Polar Capital Global Insurance fund. That's an old theme and we find that it's often not correlated with equities, which is important. We also like mining funds right now, around the theme of the energy transition, where copper and other commodities are going to be important.”
Ben Yearsley, investment consultant at Fairview Investing, said: “There have been tech and mining and insurance funds around for decades, and we are keen on those, but obviously some trendier ones you probably have to be more wary of to see whether the theme sticks.”
Peter Clark is chief executive of wealth management firm Bentley Reid, which deploys what he calls a “themes-based investment approach.”
He said the two overarching themes which are presently heavily represented in portfolios, are the debt supercycle and the technological revolution. Once the themes have been identified, they then allocate to external funds.
Clark said: “Based on our long experience in managing money across a variety of market conditions, we know that the best investments often arise from a small number of overarching mega-trends that drive economies and markets forward. Most, if not all, of the positions we own in client portfolios are directly related to either the debt supercycle or the tech revolution. A handful of them are beneficiaries of both.”
He added: “At the highest level, we believe markets are usually driven by one or two over-arching trends eg the debt supercycle and the technological revolution. Most of the specific themes will be linked to these mega-trends. In the alternatives space for our balanced mandates, we are looking for both upside return potential and diversification.
"To qualify, a holding must have a correlation of less than 0.5 to the FTSE All-World equity index over the long-term, which purposefully rules out a lot of proxy equity allocations. Hence why our current alternatives allocation centres around gold, Cat insurance bonds and CTA trend following strategies.”
