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Thematic: Investing in change?

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Thematic Investing – What is it?

Thematic Investing – What is it?

Our suite of thematic indexes represent the performance of companies associated with long-term, structural trends that many investors expect to be dominant in the future and drive performance of their investments in a rapidly-transforming world. Profound demographics changes, technological disruptions and changing consumer behavior are transforming societies globally and thus many investors are seeking to realign portfolios to these changing dynamics.

Thematic investing offers an alternative framework for analyzing investment opportunities. It is different from investing based on topical fads as it is an investment approach where the investment process focusses on how the world around us is changing. The thematic investment process relies on articulating the investment objective and then selecting companies which will benefit from wider adoption of the theme.

  Traditional Investment Thematic Investment
Investment philosophy Leveraging historical data to predict future “Winners of the past will evolve to continue winning in future” Forward looking - “Future is going to be drastically different from past and future winners will be the ones who anticipate and understand this change”
Investment approach Asset classes are the building blocks to construct portfolios Cross-section of investment themes with country/regional exposures
Alpha generation Based on selection of sectors and securities relative to a benchmark Based on conviction on Themes and identification of securities with significant exposure to the Themes
Client needs Based on client risk appetite
(E.g. Fixed income funds for investors with low risk tolerance)
Based on client situation
(E.g. Ageing population theme for a pension fund)
Research focus On asset classes, sectors and securities On Structural themes, evolution and investment opportunities

Thematic Framework 1

Thematic Framework

Our thematic framework is centered around identifying emerging macroeconomic, geopolitical, technological trends which are structural and transformative in nature and which the investor expects to influence behavior and needs over the long term.

Thematic Investment is not just another product variant, but it is a whole new framework to understand structural changes happening around us and translating that into a long-term investment strategy. It is a top-down investment approach that attempts to identify long-term, structural trends that the investor expects to be dominant in the future and drive performance of their investments in a rapidly-transforming world.


Examples of Thematic approaches:

Thematic Framework 2

Megatrends
Macro-economic trends
Micro-economic themes

Megatrends

Megatrends are the structural trends that are expected to have a long-term impact on growth in a rapidly transforming world. Examples include Ageing Populations, Globalization, Resource Scarcity or Disruptive Technology.

Macro-economic trends

Macro themes capture the trends impacting the broader macro-economic environment. These include the impact of for example rising rates, inflation, the growth of an Emerging Markets middle class, or global trade patterns.

Micro-economic themes

Micro themes capture trading opportunities that mostly play out at the sector or company level. Examples include sector investing, strategies based on company characteristics (e.g. ownership or management structure) or geopolitics.

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Megatrends

Megatrends

Over the past few years, several structural economic changes have evolved, from among other things, shifting demographics and social change, technological breakthroughs to climate change and resource scarcity. As new entrants disrupt the incumbents, investors may want to realign their portfolios to these changing dynamics.

Our new range of megatrend indexes are useful for investors focused on the rise of smart cities, the digital economy, future mobility, disruptive technology and millennials.

Key features of our new megatrend indexes:

  • Direct capture of the thematic objective, for e.g. if the thematic index is robotics, the objective of this index is to capture the performance of companies that potentially stand to benefit from increased adoption and utilization of robots and automation.
  • Leverages new technologies and machine learning to accelerate index development
  • Rules-based stock selection using economic linkage to the theme
  • Truly global coverage
  • Robust methodology and rebalancing over time adapts index as theme evolves
  • Designed to be scalable and flexible

How our megatrend indexes are constructed?

Our enhanced approach gives us a flexible and fast capability to capture themes directly. We first understand the theme and its drivers and so break it down into its component ideas.

We construct these thematic indexes with scalable and flexible methodologies. The index methodology systematically identifies companies based on the linkage of their business lines and business description information with the theme being modelled. We derive an economic relevance score to assess the strength of that link so as to select the final index constituents.

Below is a comprehensive list of our megatrends indexes:

MSCI Cybersecurity Index
Cybersecurity
MSCI Cybersecurity Index aims to represent the performance of companies that potentially stand to benefit from increased investment in systems, products and services which provide protection against cyber-attacks.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Ageing Society Opportunities Index
Ageing Society
MSCI Ageing Society Opportunities Index aims to represent the performance of companies which cater to the health, recreation and lifestyle needs of the older population.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Robotics Index
Robotics
MSCI Robotics Index aims to represent the performance of companies that potentially stand to benefit from increased adoption and utilization of robots and automation.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Efficient Energy Index
Efficient Energy
MSCI Efficient Energy Index aims to represent the performance of companies which cater in the business of offering products and services that promote power generation using renewable sources.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Digital Economy Index
Digital Economy
MSCI Digital Economy Index aims to represent the performance of companies that potentially stand to derive significant revenues from the digital economy value chain.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Disruptive Technology
Disruptive Technology
MSCI Disruptive Technology Index aims to represent the performance of companies which cater to themes commonly associated with or described as “disruptive technology.”

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Future Mobility Index
Future Mobility
MSCI Future Mobility Index aims to represent the performance of companies that potentially stand to derive significant revenues from energy storage technologies, autonomous vehicles, shared mobility and new transportation methods.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Millennials Index
Millennials
MSCI Millennials Index aims to represent the performance of companies that potentially stand to derive significant revenues from industries that target the preferences of the “millennial” generation.

FACTSHEET | METHODOLOGY | PERFORMANCE
MSCI Smart Cities Index
Smart Cities
MSCI Smart Cities Index aims to represent the performance of companies that potentially stand to derive significant revenues from smart solutions for urban infrastructure.

FACTSHEET | METHODOLOGY | PERFORMANCE

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Future Mobility

Future Mobility

A growing trend driven by the fourth industrial revolution


The Fourth Industrial Revolution—a term coined by Klaus Schwab, founder of the World Economic Forum—represents disruptive technologies and trends such that are changing the way we live and work. One of those advances is Future Mobility, which describes the evolution of future human transport, including shared, autonomous and electric vehicles. The MSCI Future Mobility Index aims to represent the performance of companies that potentially stand to derive significant revenues from energy storage technologies, autonomous vehicles, shared mobility and new transportation methods.

The future of transport

Transportation remains one of the primary household expenditures, representing between 9% in the U.S. and 13% in Europe of household budgets.i To date, only 1% of the world’s transport vehicles are electric (EV), autonomous or shared. Only 2% of all cars sold worldwide in 2018 were electric vehicles, but some investors believe demand is expected to grow, supported by the accelerated launch of new models (in Europe under regulatory pressure) and fiscal incentives in some countries. For example, in Norway, sales of EVs represented 37.1% of new car sales in the first half of 2019, thanks in part to important government subsidies, including the elimination of import and annual road taxesii and exemption of the value-added tax (VAT).

A survey conducted each year by KPMG with auto industry leaders reveals that the focus has switched from cost savings and emerging markets to the development of new types of cars, including electric and autonomous vehicles. For example, Volkswagen has announced that it will invest over $33 billion to launch an EV by 2023 and according to The Fuse, more than 200 EV models will be available worldwide by 2021, compared to just 60 in 2018iii.

There has been a lot of growth over the past few years in taxi, ridesharing and carsharing services. According to Statista, the number of vehicles in the different car sharing programs will reach 610 000 units by 2021 against 32 000 in 2010. In terms of size of the market, according to Visiongain, the car sharing market set to reach $2.4 bn in 2019. TSRC estimated that there were carsharing organizations in 2,095 cities worldwide. Fleet size was globally over 157,000 vehicles and about 15 million members are registered. Asia is by far the largest carsharing region with over 40% of all carsharing vehicles operating there. Europe is the second largest carsharing market with 37% of the global fleet deployed in that regioniv.

The road for autonomous vehicles

The development of autonomous vehicles is another sector associated with the Future Mobility theme. Until recently, autonomous vehicles had limited capabilities. Major automakers have only reached level 3 of the six levels of driving automation that range from 0, fully manual, to 5, fully autonomous. According to the Society of Automotive Engineers (SAE), level 3 means that “the vehicle is in full control in some situations, and monitors the road and traffic. It can inform the driver when he or she must take control”. However, the path to remove the need for a driver over the next 15 years is being widely researched. For example, in the U.S. Waymo, the self-driving division of Alphabet, which is considered one of the leaders in autonomous vehicles, launched an experiment in 2017 in the Phoenix, Arizona area with self-driving cars. Last September, a Morgan Stanley analyst valued Waymo at $105bn, more than any American car company or the combined market capitalization of Tesla and General Motors.

MSCI ACWI IMI Future Mobility Index

The MSCI ACWI IMI Future Mobility Index aims to represent the performance of companies that are expected to derive significant revenues from the transformation of the transport industry.

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FACTSHEET |METHODOLOGY |PERFORMANCE
 

i  (https://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Household_expenditure_by_consumption_purpose_-_COICOP,_EU-28,_2017,_share_of_total.png; https://www.bts.gov/browse-statistical-products-and-data/transportation-economic-trends/tet-2018-chapter-6-household)
ii (https://elbil.no/english/norwegian-ev-policy/).
iii energyfuse.org
iv https://escholarship.org/uc/item/49j961wb

 

The digital economy

Meet the Millennials

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Applications

Applications

Our Thematic Indexes can be licensed to clients for a variety of purposes:

How thematic indexes can be used?

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