Talking Heads - Pourquoi et comment les investisseurs utilisent l'investissement thématique ?

This is an edited transcript of the audio recording of this Talking heads podcast

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing a recent report on thematic investing. I’m Daniel Morris, Chief Market Strategist, and I’m joined by Mark Buckley, Head of Investment Management with Coalition Greenwich. Welcome, Mark, and thanks for joining me.

Mark Buckley: It’s great to be here.

DM: BNP Paribas Asset Management recently published its second report on thematic investing research, in partnership with BNP Paribas Corporate and Institutional Banking and Coalition Greenwich. The survey covered almost 200 institutional investors and intermediary distributors in Europe, Asia and North America. From your reading of the results, are investors using thematic investing strategies?

MB: Just over half of investors – 52% – are using or planning to use thematic investing. Of the remainder, about a quarter said they may consider thematic investing strategies, and the rest are not planning to.

We saw some regional differences. Thematic investing is prevalent in Europe, with 66% saying they are using or planning to use thematic investing strategies. In Asia, the figure was 41% and for North America, just over 20%.

There were also differences between types of investor, with just over one-third of institutional investors saying they are employing thematic investing strategies; for intermediate distributors, it was close to 80%.

Overall, [thematic investing] has gone mainstream, particularly in Europe, particularly with intermediary distributors.

We also asked which asset classes investors are allocating to in their thematic investing strategies. Just to take equities and fixed income, 85% said they are allocating to equities using thematic investing strategies – and we had expected that figure to be high. What was interesting was that 67% said they are employing thematic investing strategies for active fixed income, which was higher than expected.

There were two main reasons why investors are using thematic investing strategies. Number one was to achieve a positive impact, make a contribution to sustainable outcomes. 70% of the respondents gave this as a reason, and it was the primary objective in both Europe and Asia. Second in importance in those regions was enhancing investment returns, generating alpha. This was actually the prime reason in North America. Other reasons included diversification and risk reduction.

When we asked the quarter of respondents who are not using thematic investing strategies why, they said firstly, investment performance concerns and secondly, high fees and costs. When we did this research in 2020, those were the same two reasons the non-users gave. They said they would be more likely to consider investing in thematic investing strategies if there was better education and understanding of where it fits within portfolios. For some, it was about understanding the link between environmental, social and governance (ESG), sustainability and thematic investing.

DM: Did the percentage of positive respondents and regions increase from the survey in 2020?

MB: The usage of thematic investment strategies increased quite significantly in Europe, from 46% in 2020 to 66% now. In Asia, the figure slipped back from 54% in 2020 to 41%. However, the last six to eight months have been a difficult market environment.

DM: What are some of the themes that investors found particularly appealing?

MB: We’ve seen already that the number one objective was achieving a positive impact, making a contribution to sustainable outcomes. So we looked at these sustainability themes: 1. the energy transition – renewable, clean energy, climate change solutions – 2. environmental sustainability, 3. water or the circular economy, 4. food innovation, and 5. equality and inclusive growth, covering such themes as health and wellbeing, diversity and equality, education and human rights.

Two  clearly came out as the most appealing. The first was renewable, clean energy, with more than 50% of the respondents citing this. In fact, it was the number one sustainability theme across Europe, Asia and North America. The second was climate change solutions, with, again, about 50% saying this is appealing, particularly so in Europe. After those top two, the next grouping that came out quite highly were net-zero strategies and water.

Then there were themes around innovation and disruption such as blockchain, smart cities, consumer innovation, and biotechnology. The two most appealing ones were robotics and artificial intelligence. That, in fact, was number one across all regions. The second was healthcare innovation, which also had strong appeal across all regions, with about 60% of the respondents mentioning it.

DM: Can you tell us more about some of the other benefits that investors perceive from thematic investing?

MB: We asked how strongly investors associate sustainable thematic investing with impact investing and the link was almost unanimous, with 95% seeing a link between the two.

On enhancing investment returns, we explored this further to get views on short-term and long-term returns. Defining ‘short term’ as up to three years, 34% of the investors said they believe thematic investing has a positive impact over such a period, with only 7% saying it has a negative impact. The other respondents were split between those who said there was no short-term impact and those who were simply not sure.

Interestingly, in our 2020 survey, 50% claimed a positive short-term impact, so this has fallen to 34%.

In contrast, 84% said they thought thematic investing has a positive impact on performance over the long term (up to five years). This was similar to what we saw in 2020. This level of positive response was similar across institutional investors and intermediary distributors. By region, 85%-90% of investors in in Europe and Asia saw a long-term positive impact, and about 60% in North America.

In terms of the perceived benefits, we asked investors about how they plan to use thematic investing strategies in their or their clients’ portfolios over the next three years. Overall, 70% said they intend to increase their focus on this area – 84% of intermediary distributors, 56% of institutional investors. This was strong across both Europe and Asia, a little less so in North America.

So it is clear that, given the perceived benefits , there’s further room for thematic investing to grow.

DM: Mark, thank you very much for joining me.

MB: It’s been a pleasure.

This presentation includes a discussion on current market events and is not intended as investment advice or an offer of products or services by BNP Paribas Asset Management. Please keep in mind that the information and analysis in this presentation is only current as of the publication date.