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Thematic investing “could have run its course”

thematic investing, thematic ETFsThematic investing portfolios are likely to be trimmed in the near future as some investors feel future growth is already priced in, research indicates.

Investors who are likely to reduce their exposure to thematic investments are mainly in the UK – the country that was an early adopter of investments targeted at themes such as environmental and social trends.

However, the study among 300 investors across Europe points to an increased appetite for thematic investments overall.

Vontobel Asset Management, which sponsored the research, said appetite for thematic investing continues to grow, but in the UK 34% of the respondents – who were institutions and intermediaries – said they planned to trim their portfolios.

As early adopters, UK investors in the survey had one of the highest exposures to thematics, with 64% of the investors allocating at least 20% of their portfolios to investment themes. The UK was followed by Switzerland, Benelux and Italy.

“This shift in sentiment may indicate that early adopters of thematic styles, particularly in the UK, may feel that some of the underlying thematic trends could have run their course. Indeed, 41% of those planning to move away from thematic styles of investment say that future growth is already priced in,” the firm said.

The research was generally favourable to the thematic investing sector. Vontobel said European investors planned to increase their exposure to thematic investments over the next three years, with 84% of respondents having begun to adopt thematic approaches in their portfolios, while 49% planned to increase their allocations over the next three years.

More than half of the respondents across Europe allocated at least 20% of their equity portfolios to thematics, with allocations extending to 40% in some cases.

Urbanisation (pictured), smart cities, resource scarcity and climate change/ESG were likely to be the most sought-after themes in the coming years – including within asset classes such as infrastructure, real estate and bonds for investors with larger amounts of assets under management.

Covid-19 was identified as a boost for the thematic products sector, while active approaches were favoured by 29% of respondents compared to 23% for passive.

Sheridan Bowers, head of UK & Ireland at Vontobel AM, said many investors expected the long-term impact of the pandemic to further accelerate trends that support thematic exposures.

“With this in mind, we would expect to see approaches to thematic investment further evolve and mature over time. For most investors, the debate is no longer about whether to invest thematically, but about how to do so most effectively,” Bowers said.

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