Identifying tomorrow’s success stories, today
How global thematic investing focuses on the best of business and megatrends.
With economies expected to take some time to recover from the impact of the COVID-19 pandemic, investors have to work harder to find promising long-term investments. The key for equity investors is to identify companies that are well positioned to expand through these challenging times and into the future – to find opportunities that may be currently underappreciated or undervalued by the markets.
One way to do this is through an approach called “global thematic investing.” This approach focuses on finding ways to capitalize on the megatrends that are changing the way we live, how society operates or how business is done. Its goal is to identify profitable companies operating in areas with the potential to thrive in the post-pandemic world.
Rather than looking backward at historical results, like many traditional investing strategies, global thematic investing looks forward, aiming to identify future success stories. Of course, one of the biggest megatrends today is a focus on health. That megatrend is likely to continue to benefit three areas in particular: health care, health care technology and biotechnology.
Health care – moving from competition to partnership
The health care sector, which includes pharmaceutical, life science and health care equipment companies, is at the forefront of the battle against COVID-19. Facing a common enemy, competitors are now working together towards a wide range of treatments and vaccines, and this collaborative approach has the potential to reinvigorate the industry. Specifically, the pandemic may leave a lasting positive legacy by shifting corporate priorities from short-term profits towards patient-centric solutions and sustainable earnings. This shift could make the sector an even more attractive source of long-term investments.
Health care technology – using IT to improve patient care
Health care technology encompasses a broad range of companies that put information technology innovation to work. Some are developing strategies to better manage the ever-growing volume of health-related information, including genome sequencing data, to identify those at higher risk and save lives. Others are developing software algorithms to predict how individuals will react to a specific drug and to check for potentially harmful drug interactions. There’s also a rich new field of health-promoting technologies, such as smart beds that adjust to help people enjoy better sleep. Even before the pandemic, this sector was set to more than double over five years to US$390 billion by 2024.1 Increased global interest in maximizing health should contribute to that growth.
Biotechnology – harnessing biology to solve big problems
Biotechnology makes useful products out of living systems. In COVID-19 vaccine development, some biotech companies are working to teach our bodies to be “bioreactors” by introducing the messenger RNA (mRNA) that builds viral proteins to stimulate antibody production. Others are growing antibodies in the lab that could serve as a vaccine or as a treatment for COVID-19. Scientists are also busy adapting a range of drugs to fight the pandemic, such as antivirals to stop or slow the replication of the virus in the body or drugs to help tackle serious complications during later stages of infection, such as suppressing immune overreaction.
Like other industries, biotechnology is not without risk as an investment. That said, because demand for medicine is not driven by economic cycles, biotech has generally performed well through past periods of market volatility, including the 2008 financial crisis.
Is this approach right for you?
Beyond a focus on health, other megatrends informing global thematic investing portfolio managers may include sustainability, democratization, commercialization and more. By first looking at the broad forces shaping our world, these portfolio managers seek to identify investment themes that are likely to benefit from the shifts these megatrends represent. The more megatrends at play in any area, the more compelling the investment theme becomes. What’s more, their strategies typically focus on companies providing solutions to global challenges and thus aim to deliver better outcomes not just for investors, but for everyone.
In the end, global thematic investing has the potential to uncover small to mid-sized companies that haven’t made it onto indexes yet but that have excellent future potential and may come to dominate the indexes of tomorrow.
Speak to your advisor about whether global thematic investing can help you achieve your financial goals.
How ESG supports global thematic investing
More and more investment managers are incorporating an analysis of environmental, social and governance (ESG) factors into their research process. ESG offers an additional layer of protection for investors because it makes sure the companies selected for a portfolio are treating the planet, their communities and their employees with respect. Companies with a high ESG score tend to be responsible corporate citizens, and that can translate into good stock performance. In an area like global thematic investing, ESG analysis offers a different lens to identify potential future risks to a company, as well as providing reassurance to investors that the companies they own have priorities that match theirs.
Important disclosure
A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.
Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.
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