The Schroders Global Investor Study 2018 reveals the themes investors are most likely to invest in, with millennials declaring most interest in sustainability.
Healthcare is the trend investors are most likely to back, according to a study of investment preferences. Millennials, however, are more concerned with sustainability.
The Schroders Global Investor Study 2018 found 66% of investors were interested in investing in a thematic fund that focused on healthcare.
Thematic funds tend to focus their investments on certain themes or sectors. The performance of the fund is dependent on the performance of that particular sector or theme, unlike a diversified fund which moves in line with broader markets.
Among other common themes, at least six-in-ten investors were also interested in sustainability (64%), disruptive technologies (63%) and commodities (60%).
The study gathers the views of more than 22,000 investors in 30 countries. On average, 59% of people said they were interested in investing in six different thematic funds. Interest among millennials was even greater at 67%.
The most popular trend among millennials, defined as aged 18 to 36 in this study, was sustainability with 70% interested. This was followed by disruptive technologies (69%), healthcare (69%) and the data economy (68%).
Baby boomers (aged 51 to 70), were most interested in funds that invest in healthcare (61%). They were least interested in urbanisation and the expansion of cities (29%).
Investors appear to be more committed to long-term investing when backing a theme. They said they would stay invested in a thematic fund 2.1 years longer, on average, than they would stay invested in a standard investment fund.
Level of interest in thematic funds: global vs millennial investors
Alex Tedder, Chief Investment Officer of Global Equities at Schroders, said: “Thematic investing seeks to harness long term drivers of growth that should allow the companies exposed to benefit from stronger sales growth. The assumption is that this supports profit growth and thus share price performance. This is somewhat simplistic as shares will be driven by a number of other factors, not least expectations and valuation. However, intuitively thematic investing seems to resonate with both investment professionals and clients and, when applied appropriately, may provide a source of additional return.
“Interest also stems from the fact that investors are today much more aware of the major trends that are transforming the world. Big themes such as climate change, artificial intelligence, and demographic trends will have a profound effect on each one of us. They will require a significant change in the way we live our lives, the products we buy and the services we need. This concept of ‘change’ appears to capture the curiosity of investors and engender excitement in the potential for investment returns.
“But thematic investing has its challenges. It can result in portfolios with very different composition to that of a conventional stock market portfolio either in terms of the industry or geographic biases or the individual stocks held. While this can result in attractive returns, it can also introduce increased volatility and a different profile of returns at different points in the investment cycle. Investors also need to be aware of extremes in the valuations of some stocks exposed to certain themes that are particularly in vogue.”
Here, we set out the background to some of the themes favoured by investors.
Spending on healthcare is rising around the world. This is due in part to improvements in the quality of healthcare – companies are striving for better treatments. It is also due to increasing longevity. In the US, one in four 65-year olds today will live beyond the age of 90, according to the government’s Social Security website. The combination of these factors means healthcare spending in the US is expected to rise by 5.5% annually over the next eight years and may comprise 19.7% of the economy by 2026.
Pharmaceutical and biotech companies globally hope that developing treatments for illnesses, from cancer to the common cold, will lead to strong future revenues. Gene therapy, where patients’ cells are reprogrammed to fight illness, has been one of the most intense areas of research in recent years.
Just under two-thirds (64%) of investors globally said they were interested in thematic funds that focused on sustainable investment.
It comes as sustainability issues have risen up the broader news agenda. This year the issue of plastic has been a hot topic, but climate change remains a primary concern.
Social and environmental change is happening faster than ever. Climate change, shifting demographics and the technology revolution are reshaping the planet. Those companies that can adapt and thrive will be more successful in attracting customers, employees and growing their business.
Disruptive technologies, such as blockchain and artificial intelligence, were also of interest to investors with 63% of investors saying they would be interested in funds investing in them.
Disruptive technologies are plain for most people to see. Retailers are being displaced by the likes of Amazon while Uber has had a huge impact on taxi businesses around the world. But it goes far wider. Processes are being developed across nearly every industry that mean new goods and services are replacing established competitors. This theme was of particular interest to the youngest investors; those aged 18 to 24 said it was of most interest (28% definitely interested, 34% quite interested).
Thematic investors are in it for the long term Investors weren’t just looking to make quick money from the themes they have backed. Investors ranked stable long-term returns as the highest priority (7.8 out of a maximum score of 10) when choosing an investment.
And investors said they would stay invested in a thematic fund for an average of 2.1 years longer than if it were a standard investment fund.
The holding period was even longer, at an average of 2.3 years extra, for those people who consider themselves to be expert/advanced investors.
Published by David Brett, Investment Writer, Schroders
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