Investor appetite for thematic funds has grown significantly over the past 12 months, according to the latest BNP Paribas Asset Management survey of institutional and wholesale investors conducted by Greenwich Associates.
More than just an industry trend, this structural change highlights a fundamental shift in approach to asset allocation, away from a focus on asset class, geography and business sector, and towards a more thematic approach.
The survey highlights that 88 per cent of wholesale and 36 per cent of institutional investors already use or plan to use thematic strategies, while 90 per cent of investors believe that thematic investing has a positive impact on long term performance. Some 76 per cent of investors’ main objective for using thematic investing strategies meanwhile, is sustainability and ESG, followed by the ability to enhance investment returns (42 per cent), to include a more innovative or disruptive investment approach (36 per cent), or to increase diversification (30 per cent).
There is a growing appetite for sustainable thematic funds as investors increasingly want their investments to have a positive impact on the world around them. Sustainability and ESG was identified by the highest proportion of respondents, with the leading preference being an overall focus on the UN Sustainable Development Goals (41 per cent), followed by climate change solutions (21 per cent) and renewable energy (18 per cent). This acceleration reflects the broader asset management industry trend and the supportive regulatory and public policy backdrop, including initiatives such as the Sustainable Finance Disclosure Regulation (‘SFDR’), the EU Taxonomy, the EU Green Deal and the Biden administration’s prioritisation of reducing the United States’ carbon footprint and achieving net zero.
Among the themes related to innovation and technology, respondents identified the most attractive as being health (28 per cent), robotics & artificial intelligence (23 per cent) and disruptive technologies (13 per cent). More than 50 per cent identified these themes as being among the three they considered the most appealing. These were followed by disruption themes such as cyber security, biotech, 5G and smart cities.
This interest in digitisation has clearly accelerated with the Covid-19 pandemic and the need to adapt to new ways of living and working remotely. Many associated sectors have demonstrated resilience during the crisis due to their flexibility and ability to adapt. This is particularly the case for areas such as healthcare innovators, which proved to be highly robust as secular growth trends including population ageing, movement towards healthier lifestyles and increasing appetite for healthcare in developing economies have remained intact.
Thematic investing has typically been more focused on equities, but there is growing traction within fixed income. The study showed that the majority of investors are using or considering equities for thematic investing (87 per cent), followed by fixed income (42 per cent), ahead of multi-asset and private markets (both 30 per cent). This data underlines a growing and accelerating trend towards allocating to fixed income thematics, demonstrating a fundamental shift in approach to asset allocation, with thematic investing becoming an integral part.
Pierre Moulin, Member of the Executive Committee and Global Head of Product & Strategic Marketing at BNPP AM, says: “The growth of thematic investing has been remarkable, expanding threefold between 2017 and 2020, with notable support from distributors and retail investors. We expect this trend to accelerate, driven by upcoming regulatory change, including the integration of ESG preferences in investor choices under MifFID II, as well as growing demand from institutional investors for thematic strategies.”
BNPP AM’s assets under management in thematic funds increased by 66 per cent to EUR25 billion in 2020 compared to 2019. The thematic range includes Energy Transition, currently valued at EUR3.4 billion and ranked second best performing active equity fund in 2020, Environmental Absolute Return Thematic (EARTH), Inclusive Growth, Disruptive Technology and Healthcare Innovators.