Future-focused investors

Pictet Asset Management’s team seeks long-term opportunities before the markets do.

Switzerland-based Pictet Asset Management, Manulife Investment’s partner in the launch of the Manulife Global Thematic Opportunities Fund, has a long history of looking forward. Founded in 1805 in Geneva, it is a privately owned financial group with the stability that comes from having had fewer partners over the years than there have been American presidents. Through two centuries of European turmoil, Pictet not only survived but thrived, and today it is responsible for about US$500 billion in assets under management.¹

But one of the defining features of Pictet’s thematic equities group is that it doesn’t spend a lot of time looking backward. Instead, the 40-member team¹ focuses on the future as it scans the world for the best investment opportunities. Since its launch in 1995, the thematic equities group has built a diverse collection of thematic funds that seek to capitalize on megatrends – global shifts that the portfolio managers believe will play out over several decades. It’s proven to be a successful approach and, in just the past five years, the thematic equities group has seen its assets under management double to about US$40 billion.¹

“[Our] strategies are based on the concept that we believe that certain types of economic activities, if they are supported by a number of secular trends that are moving the world in certain directions – if they are supported by those megatrends, then over time these activities will grow faster than GDP,” says Marc-Olivier Buffle, Senior Client Portfolio Manager, Thematic Equities at Pictet. 

This modified pie chart with a breakdown of one segment illustrates how the current 12 themes of the global thematic opportunities fund are derived from the intersection of several megatrends. For example, the nutrition investment theme is a combination of the megatrends of focus on health, globalization, technology development, demographic development and sustainability.

A peek inside the portfolio construction process

Manulife Global Thematic Opportunities Fund is a “best of” solution that draws on the specialist analysis that goes into running 11 distinct Pictet funds specializing in different themes. It’s the responsibility of Senior Investment Managers Gertjan van der Geer and Hans Peter Portner to select the most attractive combination of top picks from those funds to construct the Manulife Global Thematic Opportunities Fund.

This bar chart shows the conviction of the Global Thematic Opportunities Fund. It shows under 10% overlap ratio with the MCSI World Index, almost 90% active share vs. the MSCI World Index, and over 80% specialized / purity factor. Source: Thomson Reuters Datastream, Pictet Asset Management. Data as of August 31, 2018.

The starting point is generally a short list of the overweight positions in the individual funds – those are high-conviction holdings where the managers have put their money where their mouth is. The team ranks these companies based on three primary criteria: “We’re very focused on cash flow return on investment. We’re very focused on accretive investments as well, so ... each dollar that goes into the business, we want it to be margin-accretive and not value-destructive. And lastly valuation is extremely important,” van der Geer says.

In-depth discussions with the thematic fund managers are complemented by van der Geer’s and Portner’s own analysis. This work integrates environmental, social and governance (ESG) criteria to help manage the stock-specific risk that’s part and parcel of building a relatively concentrated fund. Following this analysis, weaker names are eliminated and the short list gets shorter. Allocations to the 11 themes are also checked to make sure each stays below 20 per cent to ensure diversification within the Manulife Global Thematic Opportunities Fund. 

Our themes: Robotics, Security, Digital, Water, Premium brands, Nutrition, Clean energy, Timber, Health, Global environmental opportunities and Biotech.

When evaluating companies, van der Geer emphasizes, “You cannot see everything in the numbers, so you have to dig into the profile of the business as well. What we look for are companies that have the ability to significantly grow, that are not threatened in their competitive moat (so they have a very defendable, sustainable competitive advantage), and [that] therefore are likely to keep on printing returns that the market thinks should fade to the mean, but don’t.”

Each of the 50 to 70 holdings that eventually make it into the Manulife Global Thematic Opportunities Fund is expected to be buoyed by one or more of the megatrends Pictet has identified in collaboration with the Copenhagen Institute for Futures Studies. So, these are strong companies that are also supported by long-term forces. Many are not large-caps and are not listed on the MSCI World Index – but they have great potential to become listed large-caps in the future.

“The philosophy of all of our theme funds is instead of looking backwards and looking at the MSCI World [Index], which is a reflection of past performance ... if you want to beat the benchmarks you’ve got to think ahead instead of looking in the rear-view mirror,” van der Geer says, adding, “It’s the areas where we disagree with the market where we can add most value.”

We identify themes which are underpinned by multiple megatrends - confident that in these themes we can find long-term future winners in the global stock market.

— Hans Peter Portner, Head & Senior Investment Manager, Thematic Equities Team, Pictet Asset Management

As at March 31st, 2018.

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