Risk-Managed Thematic Investing

Thematic investing opportunities today are often positioned as active investment decisions in an attempt to add active returns.

Themes are perceived trends that are expected to materially change the economies in revising existing and/or driving new business models.

Featuring Wai Lee, Allspring’s Co-Head of Systematic Research, this webinar first takes a more comprehensive view by framing thematic investing as a special case of factor investing through a total portfolio factor lens: Themes are missing factors.

Next, we discuss how to leverage advances in Natural Language Processing to identify themes that lead to development of an objective and systematic approach to quantify firms’ exposures to multiple themes.

Lastly, we present a rigorous and unified process to construct risk-efficient frontiers of multi- or single- thematic portfolios, benchmark aware or agnostic, that are more theme-focused and diversified when compared to the conventional approach.

Transcript (with timings)

2:51 – The development of factors in thematic investing

6:53 – Should all types of investors be considering themes?

7:48 – Defining and capturing emerging themes

9:13 – How newer themes can be established, and the importance of NLP (Natural Language Processing)

13:04 – How confident can investors be in the data they are analysing when trying to establish a new theme

15:00 – Considering themes in different countries / geographies

16:15 – The ‘stay at home’ factor  

20:20 – The application for thematic investing is often via ETFs. But are they effective?  

21:05 – Only 30% of the portfolio holdings overlap in any 2 ETFs across the full range of Robotics ETFs, so how can a decision be made on which is more effective?  

22.02 – Often, many of the risks of a thematic ETF can be unrelated to the theme.

24:48  – What’s the difference between a traditional thematic approach and a systematic approach?

29:14 – AI (Artificial Intelligence) as a theme is a great example of how all approaches can all be brought together in a blended portfolio. 

35:13 – Should long term investors be so specific to target themes, or assume that at some part most will be reflected in the market beta anyway. 

38:14 – Considerations for investors when building a multi-theme portfolio

42:21 – Adopting a more adaptive and flexible approach to  augment your risk model

 

Speaker: Wai Lee, Co-Head of Systematic Research, Allspring Global Investments

Facilitator: Teik H. Tan, Executive Director, Investment Innovation Institute [i3]