Thematic Investing with Systematic Portfolios

by | Feb 5, 2020 | Asset Management, ORS Systematic Thematics, Portfolio Construction

Thematic Investing with Systematic Portfolios

Thematic Investing Opportunities

Thematic investing strategies continue to grow in popularity, with increasing attention, fund launches and assets under management.

In the US, thematic ETFs saw $615mn inflows in Q3 2019 against $756mn in outflows. Singapore, Sherpa’s home base, has seen thematic funds available to investors grow from just 2 at the start of 2017 to more than 39 at the end of 2019.

Thematic funds come in many flavors.  Some are passive index trackers.  Others are more traditional actively managed funds.  Providers continue launching new funds with ever-more niche, customized or complex approaches to try to meet investor demands.

However, the thematic investing trend isn’t limited to retail or individual investors using off-the-shelf funds.

Institutional investors, including pensions, sovereign wealth funds, family offices and others, are using thematic strategies to capture opportunities presented by evolving megatrends and themes.

Of course, institutional investors have more options to implement thematic strategies beyond just investing in existing funds.  These investors are capable of designing and implementing thematic strategies in ways that fit their unique organizational needs.

ORS Systematic Thematic Portfolios

The ORS Systematic Thematic Portfolios series will demonstrate how a systematic portfolio construction approach can help institutional investors build customized, robust expressions of thematic ideas.

We’ll utilize Sherpa’s process-driven portfolio construction framework to create expressions of investment themes that better match investor requirements versus off-the-shelf options.  New readers can find an introduction to this framework here.

The Sherpa portfolio construction process requires answering the following questions:

Generate Investment Ideas

    1. How do you determine which assets to include in the portfolio? (Selection)
    2. How do you differentiate between the assets? (Scores)
Apply the Ideas to Create an Investable Product
      1. What risk do you want to take? (Risk You Want)
      2. What risks do you NOT want to take? (Risk You Don’t)
      3. What additional operational constraints are on the portfolio? (Objectives and Constraints)

Each ORS Systematic Thematic example will apply the framework above to show how a wide range of practical thematic expressions can be built tailored to individual investor requirements.

To demonstrate how investors can build better thematic portfolios, we will work through the process with different themes over time.

  • Select a Theme: Select a popular or timely theme
  • Generate Ideas: Select assets that represent the theme and provide a scoring rubric
  • Shape the Portfolio: Define the risk we want to express in the portfolio, the risk we don’t, and any objectives and constraints to make the portfolio practical
  • Construct the Portfolio: Utilize the Sherpa Optimal Risk Sizing (ORS) engine to ultimately construct our thematic portfolio

Then we will examine the resulting portfolios to showcase the impact of a customizable, systematic approach to implementing thematic investment strategies and discuss ways investors could utilize their own inputs to build portfolios that fit their requirements.

ORS Systematic Thematic Investing Examples

Below is a list of ORS Systematic Thematic Examples with links.

To discuss ORS Systematic Thematic Portfolios or learn more about Sherpa Funds Technology’s process-driven approach to portfolio construction, get in touch here or sign up for the SFT mailing list