BNP Paribas Asset Management (‘BNPP AM’) reveals the key findings of its latest survey conducted by Greenwich Associates[1] on institutional and wholesale investors’ attitudes to thematic investing.
Investor appetite for thematic funds has grown significantly over the past 12 months. 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% of wholesale and 36% of institutional investors already use or plan to use thematic strategies
- 90% of investors believe that thematic investing has a positive impact on long term performance
- 76% of investors’ main objective for using thematic investing strategies is sustainability and ESG, followed by the ability to enhance investment returns (42%), to include a more innovative or disruptive investment approach (36%), or to increase diversification (30%).
Sustainable thematic investing is on the rise
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%), followed by climate change solutions (21%) and renewable energy (18%). 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.
An increased appetite for technology and innovation themes
Among the themes related to innovation and technology, respondents identified the most attractive as being health (28%), robotics & artificial intelligence (23%) and disruptive technologies (13%). More than 50% 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.
Attention on fixed income
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%), followed by fixed income (42%), ahead of multi-asset and private markets (both 30%). 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 comments:
“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% to EUR 25 billion in 2020 compared to 2019. The thematic range includes Energy Transition, currently valued at EUR 3.4 billion and ranked second best performing active equity fund in 2020, Environmental Absolute Return Thematic (‘EARTH’), Inclusive Growth, Disruptive Technology and Healthcare Innovators.
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