The importance of thematic investing for your portfolio
In the first of our five-part video series, Matthew Bullock, EMEA Head of Portfolio Construction and Strategy, explains how thematic investing could play an increasingly important role in constructing a portfolio and generating outperformance.
3 minute watch
- It is anticipated that the next ten years of equity market returns will likely be more challenging than was the case in the previous decade.
- We believe that identifying the themes that are changing how society operates – within healthcare, technology, property and sustainable investing – can enable us to find the companies who will be future leaders.
- From a portfolio construction perspective, thematic strategies could offer greater alpha potential and diversification benefits.
Alpha is the difference between a portfolio’s return and its benchmark index, after adjusting for the level of risk taken. The measure is used to help determine whether an actively managed portfolio has added value relative to a benchmark index, taking into account the risk taken. Alpha potential is the potential for a manager to add value.
Concentration of a portfolio can happen when there are a low number of invested assets, or when they are similar in nature.
Diversification is a way of spreading risk by mixing different types of assets/asset classes in a portfolio, on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.
Liquidity is a measure of how easily an asset can be bought or sold in the market. Assets that can be easily traded in the market in high volumes (without causing a major price move) are referred to as ‘liquid’ and are considered to have low liquidity risk. Assets which are not easily traded have high liquidity risk.