Growing popularity
They were once considered niche. But thematic equities have in recent years evolved into mainstream investments. Their ability to transform broad, long-term macro-economic, technological and ecological trends into investments has struck a chord with a growing circle of investors.
Even so, questions remain over how to incorporate such stocks within portfolios that use traditional asset allocation frameworks.
In 2019, Pictet Asset Management provided some preliminary guidance on this matter, drawing on well-established portfolio construction concepts and portfolio optimisation tools.
The purpose of this update is two-fold. First, we wish to incorporate revised capital market assumptions into our analysis. Second, the report is an opportunity to explain our evolving thinking on the inclusion of thematic strategy combinations as core portfolio holdings.
In our view, thematic equities can be incorporated into diversified portfolios using any of three broad approaches. Thematic equities can function as:
- Satellite allocations within a core-satellite framework
- Investments within a global equity asset allocation
- Alternatives to fully diversified equity portfolios
