Welcome to the Age of the Theme! Before the dawn of global integrated markets, asset allocation theory and index-tracking exchange-traded funds (ETF), investors faced a simple choice - which sector to invest in? But not any more.
Investors are increasingly presented with broad, global themes that link together companies in different sectors and different countries and accessed using a wide variety of investment vehicles. Only recently Newton Investment Management, one of the biggest fund managers in the UK, chose to kick off its annual discussion of market trends not by looking at the global macroeconomic picture or the outlook for the UK economy, but by focusing on the big themes facing UK investors.
In the US, this kind of thinking has been taken to the extreme. Investment house DWS Scudder has recently launched a mutual fund -the US version of a unit trust -exclusively built around the idea of capturing a number of global themes in one simple fund, called the Global Thematic Fund (see DWS website for a PDF factsheet) And fans of index-tracking ETFs have jumped on the idea in the US - there are hundreds of ETFs that allow investors to use a single fund to buy 'access' to a big theme. An example is the Van Eck "Market Vectors" range of ETFs, which include themes like agribusiness, Africa, gaming, coal, environmental science, alternative energy and nuclear energy (more details on the Van Eck website).
The benefits to investors
The benefits of all this smart new thinking - and new fund launches - are obvious for private investors willing to take the big theme plunge:
• Managers who base their strategy on simple one-theme ideas might pick the correct trends in the short term, but eventually falter because the companies they chose simply fade away or the competition catches up.
• Many of the most interesting global themes are outside of the mainstream and involve either picking the biggest and the best in a particular sector or (the DWS approach as practised by fund manager Oliver Kratz since 2003) an active fund manager picking the best stock that fits one of the themes.
• Most theme-based approaches are deliberately global in scope and thus tick all the boxes when it comes to diversifying your risks and returns.
• Increasing correlation of national stock markets means that investors can now pick and choose the best companies in each big theme across national frontiers, allowing them to concentrate on the best company to take advantage of the big trend.
