“Certainly there are examples of tremendous long term success in this space. They’re just very few and very far in between.”
So how do advisers pick the right fund?
Johnson says the problem when picking the right fund is there are numerous thematic funds that sound similar but when looking under the bonnet their holdings are often vastly different.
“So that creates an immense due diligence burden for investors when it comes to fund selection in these niche spaces, and it gets to the point where it’s almost as difficult to do due diligence here as it might be to try to vet some of the individual securities that those funds hold.”
He adds: “When you look at these funds, you’re you’re basically making a trifecta bet. So you’re betting that you’re going to get three things exactly right.”
1) The theme itself is real and durable and is there actual economic value that is going to be extracted by different firms within that space
2) The fund actually owns the stocks that are going to extract that value
Johnson says: “What we see oftentimes with these funds is that for a variety of reasons, they might cast a pretty wide net and wind up owning, say like a large industrial conglomerate that generates 0.5 per cent of its revenues from this particular theme, but it is and will forever be kind of a sideshow for them.
“So if the portfolio doesn’t line up with the theme and the theme is real durable, there’s value there, then it’s all for naught and that falls apart.”
3) Right valuation at the right time
Johnson says: “What we see oftentimes, by the time that the asset management industry is rolling products off the assembly line to try to capitalise on a particular theme, the markets have already gotten very excited about it and valuations are ripe for a fall.”
Edmondson believes there are great opportunities in new economy real estate but she sees it as more of a “completion portfolio”.
She says: “If you’re already invested in the traditional real estate sector, there’s a lot of advantage to that, particularly in a rising inflation environment, real estate typically does pretty well.
“But to complete your exposure, I think you do need to have exposure to some of these more up and coming disruptive areas of real estate like infrastructure, data centres and then the logistics and supply chain piece of it.”
But for Tematica’s Versace (pictured, left), thematic funds are alpha generators. “Thematics, if done right, identify structural changes across the intersecting landscapes of economics, demographics, technology, and psychographics.