Investing for growth: It's trendy to spot the themes

GLOBALLY invested themed funds have become something of a flavour of the month in the UK recently. They follow a model that has been successful in the US for more than a quarter of a century.

Fund managers such as Sarasin, American Phoenix and GT Global led the way in launching such funds in the UK, and have been followed by Perpetual and Guinness Flight.

These fund managers try to track trends that have worldwide implications, rather than just local. Such trends include ageing populations, rapid growth of new technology, restrictions in the welfare state and the breakdown of world trade barriers.

"A theme is something that transcends countries, borders, industries and sectors," says Peter Winders of American Phoenix. According to GT Global, the trends combine to offer investment themes that affect each other. So investment opportunities created by new technology will not necessarily be limited to technology stocks, but could be in financial services or healthcare, for instance. By the same token, investment opportunities for health companies are likely also to be beneficial for new technology.

If it all sounds complicated, then these managers have statistics to support their cases. A study conducted by Ned Davis, a US research group, on share performance between 1980 and 1993 found that during that period the wrong share picked in the wrong sector would have grown by just 4.5 per cent a year. The right stock in the wrong sector would have grown 15 per cent, but the wrong stock in the right sector would have grown by 19.8 per cent.

What fund managers aim to do is pick the right sector by using complicated trend analysis data, and then pick the right stocks within that sector. "It's much more important to us to be in the right sectors than in the right stocks. It is themes that will get you in the right stocks," says Mr Winders. "Before we start thinking about a country, sector or industry, we look at what themes happen to be in play, such as the ageing population, or moves to outsourcing. The aim is to be in the sectors which are moving forward."

By their very nature such funds are for those who seek growth opportunities over the longer term. Themes identified by fund managers are likely to last for 10 to 20 years and consequently the aim is to get in on the ground floor before too many people cotton on and push up the share prices.

This is what has happened in the biotechnology field where investors hoping to make a killing have forced many stocks up in price long before companies actually have products to sell. Investors are buying into an expectation of future profits but with the high risk biotechnology arena, many are likely to be disappointed. Global theme funds aim to reduce the risks by buying stocks that will benefit from future events, rather than punting on companies that may or may not make it big.

Results from many of the funds have proved disappointing so far. But with many of the themes not expected to have major effects for many years, that is perhaps not surprising.

While backing such trends could prove to be lucrative, the funds are only suited to investors prepared to wait it out according to Graham Bates, an independent financial adviser. "Specialist sectors such as technology and healthcare are best suited to someone who is prepared to take a long term view," he says. "Although there is greater volatility with investment in smaller and specialised companies, the growth potential is high. This type of investment would suit younger people who want to invest a small to medium-sized lump sum and who have plenty of time to watch the investment grow."

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Sheridan Maine: Financial Accountant

£150 - £190 Daily Rate: Sheridan Maine: One of London's leading water supplier...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor