Institutional investors are increasingly shifting thematic investing into their core asset allocation as they see a fit with long-term asset-liability management strategies, according to Karen Kharmandarian, chief investment officer and co-manager of the AI & Robotics strategy at Thematics Asset Management, part of Natixis Investment Managers.
“What we have seen gradually is that, beyond retail investors, it has moved up the sophistication ladder to wholesale, private bankers, family offices, and institutional clients,” Kharmandarian (photo) said in an interview. He added that investors now deploy multiple thematic strategies to diversify their exposure across sectors and geographies by using what he calls “a thematic lens” to be exposed to companies benefiting from structural growth trends.
Despite a dip in assets under management in 2022 the trend reversed in 2023, resulting in positive net flows that continue this year. Natixis explained that capital - “mid-double-igit millions’ - has predominantly flowed into funds with a five-year track record, such as AI & Robotics, Water, Safety, and the multi-thematic fund Meta. These funds, launched in 2019, have now reached a critical size, attracting a broader investor base, including institutional investors with minimum asset requirements to mitigate concentration risks.
‘Compounding over many years’
The Paris-based asset manager emphasised the power of thematic strategies for long-term growth. «It’s not just something for the next one or two years,” Kharmandarian said. “It’s about compounding over many years and benefiting from these trends across different sectors of the economy.»
Thematics Asset Management is one of the boutiques of the Paris-based Natixis group. Kharmandarian co-founded the boutique in 2019. It manages about 3.6 billion euro (as of end of June), of assets in five thematic equity strategies.
Traditional sector-based or geography-based approaches are becoming less relevant in today’s globalised, yet increasingly deglobalising world, Kharmandarian said, adding that applying a thematic lens to invest in companies aligned with secular trends offers a more robust strategy.
AI & Robotics
When it comes to AI and robotics, the firm favours providers of related products and services rather than adopters. The chief investment officer (CIO) said this approach ensures high exposure and impact, particularly favouring pure-play companies and maintaining portfolio flexibility for long-term performance.
«We are in the early stages of infrastructure build-out for generative AI,» Kharmandarian explained, highlighting investments in technology companies like Nvidia, AMD, ASML, BE Semiconductor Industries, and TSMC. «Active management is crucial for rapidly evolving themes,» he continued, advocating for stock picking based on fundamental research, concentrated portfolios, and a conviction-based, unconstrained approach. The latter allows portfolio managers to construct a portfolio independent of a market benchmark.
Wellness and subscription economy added
Inspired by his previous work at Swiss asset manager Pictet until 2018, Kharmandarian has expanded Thematics› investment approach from the original three themes of AI and robotics, water, and safety to five themes by adding wellness and the subscription economy.
Each theme is defined broadly; for instance, safety encompasses cybersecurity, payments, food and transport safety. The wellness spectrum covers prevention and mental health. Netflix is included among the picks in the subscription economy theme.
The multi-thematic strategy Meta equally weights all five themes and rebalances monthly. This serves investors seeking diversified exposure to various trends in one place.
Deglobalisation presents new opportunities
The fragmentation of globalised markets into more regional blocks will provide new investment opportunities. ‘The costs of doing business are changing and increasing, but it’s also opening up new opportunities,’ the CIO said. The reshoring, friend-shoring, and near-shoring trends, accelerated by geopolitical tensions and the Covid-19 pandemic, create demand for new machinery, equipment and technology investments. “Investments are shifting to where the opportunities are. We just need to adjust.»
Kharmandarian suggests considering thematic strategies with broad and deep universes and avoiding overly niche strategies that may not endure. “What investors need to be wary of are very fashionable trends not designed for the long term,” he warned. “Ensure the breadth and depth of the universe to navigate different market configurations,» he concluded.
This prudent approach helps ensure that thematic investments made today will continue to provide value and resilience in the future, he said.