2. Focus
Successful thematic investment demands several different levels of focus and specialisation.
To begin with, focus means being specialists in the themes and industries in which we invest. Being able to understand the evolution of the megatrends influencing the companies operating within a particular industry demands concentrated effort and years of experience. Which is why we are not generalists covering multiple sectors or themes. Some of us have been following certain stocks in our universe for over two decades. We know the management teams inside-out and have good access to them given the size of our holdings.
Second, the companies we build stakes in also have to be very focused - specialists in their chosen fields
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which we measure using a proprietary gauge called "thematic purity”. Only companies whose activities predominantly lie within the scope of a particular theme/industry become candidates for investment: pure plays are always favoured over more diversified companies.
Portfolios made up of pure plays can be expected to do better than a portfolio that contains conglomerates.
In part, that's because a large body of research suggests specialist companies make for better long-term investments than larger, more diversified firms. This academic literature, which appears to have been overlooked in recent years, points to the existence of a “conglomerate discount” – i.e. that big firms are worth less than the sum of their parts.1
By extension, portfolios made up of pure-plays – firms that specialise in activities in which they have a distinctive competitive edge – can be expected to do better over time than a portfolio that contains conglomerates. And although mega cap companies are no longer called conglomerates, a large number of such firms pursue the same wide range of activities. Unsurprisingly our strategies are tilted towards smaller- and mid-cap companies. We believe therefore that our focus on purity is a tailwind for our equity strategies.
Focused investment teams with combined portfolio manager and analyst functions
Thirdly, our focus extends to how our investment teams are structured. Each team member is not only a portfolio manager, sharing responsibility for the management of the strategy, but is also a stock analyst. By dedicating all their attention to a clearly-defined universe of stocks, our investment managers develop distinctive, specialist expertise.
We believe this gives them an advantage over the typical active global equity team, which works rather differently. Most mainstream global equity funds are run by managers supported by several analysts, whose task it is to generate lists of their best ideas within their assigned sectors. The portfolio construction team then chooses stocks from among those recommendations.
Our investment managers develop distinctive, specialist expertise.
A typical global equity manager tends to have to cover a very large universe of stocks and are thus less focused than analysts. This can make it very difficult for them to add value in the portfolio construction process, as successfully picking stocks from a list of analyst recommendations is difficult.
Important legal information
This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The latest version of the fund‘s prospectus, Pre-Contractual Template (PCT) when applicable, Key Information Document (KID), annual and semi-annual reports must be read before investing. They are available free of charge in English on www.assetmanagement.pictet or in paper copy at Pictet Asset Management (Europe) S.A., 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg, or at the office of the fund local agent, distributor or centralizing agent if any.
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