With the growing popularity of thematic investing in Asia, emerging tech and sustainability are attracting the lion’s share of the fund flows.
“Exposure to… rapidly-developing sustainable technology sectors is becoming increasingly sought after amid efforts to generate reliable long-term returns,” said Axa IM in a research note.
This is reflected in new research conducted by Broadridge, a global fintech firm, which interviewed 90 fund selectors in Europe, Asia Pacific and North America during the first quarter of 2021. “[It] reinforces the widespread shift in focus towards themes in driving investment decisions,” added the fund house.
For example, assets in these types of funds had already grown at an annual rate of 37% since 2018; Covid-19 accelerated this to 77% in 2020. In all, since 2017, thematic portfolios have represented almost 40% of all equity fund net sales globally, according to the report by Axa IM and Broadridge, called “Thematic investing set to transform asset management?”.
“The rationale of thematic investing is to future-proof portfolios by giving investors better visibility on the trajectories of those companies best positioned for change – rather than focus on short-term macro noise or investment flows,” explained Axa IM.
Gaining momentum in the mainstream
Within the macro theme of emerging tech, the Broadridge research showed the highest cumulative flows from investors across Asia Pacific going into funds investing in disruptive and “other” tech. This references themes mainly clustered among security / cyber security, fintech, semiconductor, connectivity and digitalisation.
“Appetite for these has clearly accelerated since Covid-19 as the role of technology and influence of digitalisation have exerted a tight grip on business practices as well as consumer behaviour,” said Axa IM.
The firm’s research noted cited examples such as the expected increase in sales of electric vehicles over the next decade – which will also spur sectors such as batteries, parts and semiconductors.
The research also spotlighted sustainable energy, given that the region accounts for around half of the world’s energy consumption and half of global greenhouse gas emissions.
“Increasing fund flows into renewable forms of energy are in urgent need,” added Axa IM. “Not only will they support multiple development objectives in line with government commitments in China, Japan and South Korea towards lower carbon emissions, cleaner air and improved public health outcomes, the required investments in renewables can also create almost three times as many jobs as investments in fossil energy sources.”
The Broadridge research also forecasts technology as a dominant structural megatrend in defining economies and societies within Asia Pacific over the next 10 years.
“It reflects the impact of the pandemic in spurring change in investment habits and patterns – which, in turn, has lured investors to thematic fund products that leverage this evolution,” said Axa IM.
The fund houses added, however, that the key to ensuring the focus on thematics continues is the ability of investors to apply clear criteria in segmenting the theme.
“There is an important difference, for example, between funds that identify opportunities by sector, such as technology, and those that identify them by the specific theme, such as developments in robotics and artificial intelligence,” the firm explained.