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Capitalising on change

Eric Sarasin is head of private banking at Bank Sarasin in Switzerland, and a member of the bank's founding family.

There's money to be made from globalisation. Thematic investing allows business families to look at the financial world in a new light, taking advantage of the emerging markets and changing macroeconomic trends. Eric Sarasin explains how business families can profit

In investment, an approach, methodology or product which reflects our own personal and professional situation is most likely to meet our expectations. The result is overall satisfaction, as we can rest assured we made the right choice. If we examine the key values of family businesses today, and how they have grown over decades (even centuries) we will find values that not only stand firm and clear for families, but apply to every one of us. Understanding how important these key values are for a family and its business is key for myself as a private banker serving family businesses, looking for solutions that best reflect those values, and assisting those clients in feeling at ease with the capital markets. Thematic investment is one strategy for investing in the capital markets whose philosophy chimes with these issues, and can help families maximise and protect their wealth, giving them exposure to these lucrative, but risky, markets. Thematic investing can be used as a structured product, which provides users with a tailored basket of investments that may not be available in other types of investment. They can incorporate non-standard features like capital protection, warrant and traditional loan gearing, exposure to overseas equities, commodity hedge arbitrage and 'share index' style investment

Thematic investing is a different way of looking at the financial world, allocating investments not by country or industry, but instead by worldwide macroeconomic trends. In thematic investment, analysis of those trends or themes such as country and industry within this initial bracket then forms a strategy by which families can invest in the top blue-chip companies that benefit best from these themes. It's a long-term outlook strategy. At the moment, this type of investing is only used by a handful of money managers but it is sure to grow ever more popular because it allows managers to actually benefit from constant technological, structural and regulatory shifts in local economies and the global economy as a whole. Seeing the bigger picture of what is happening and how it will impact on local economies allows managers to arbitrage what they think will happen in the future, so family investors can invest in companies that might not look like strong buys now, but could be the stars of tomorrow's economic growth. There is money to be made from globalisation for the investment portfolio, and families can take satisfaction from knowing they are investing in economic growth over a range of products and industries.

Tradition and innovation must go hand in hand if a family business wants to continue to look forward yet cultivate its traditions. Approaching the capital markets, can we apply the same family methodology when investing our assets? Can we obtain this cross-fertilisation between tradition and innovation so badly needed? Yes we can, by maintaining focus on key themes and values. In my role, I define key investment themes as dynamic global trends that stimulate corporate earnings growth, and drive long-term stock price out-performance over several years.

Approaching the future in the same way as we reflect the past can help us find the key themes of our time and perform ahead of the curve. Family businesses thrive on cross-fertilisation of tradition and innovation, and thematic investing is a great match between the family business and the capital markets. Thematic investment follows short-; medium- and long-term trends, creating a comprehensive strategy allowing for market fluctuations, so it needs keen and active management.

Currently, of course, Asia is the watchword for investors and businesses everywhere, and no less for thematic investing, though in a different way. Now and for the foreseeable future there will be strong demographic and industrial-driven growth in Asia and, naturally, its need for basic resources will also balloon, indicating a resultant boom in the commodities market. To take advantage of this, a thematic strategy manager will first look at demand from these fields, take a top-down look at the market, then filter out key supply elements in which to invest.
Similarly, Latin America is a thriving place for thematic investment; because of long-established business relations with Asia, the region is profiting nicely from this economic wave. Sarasin's thematic managers, for example, use this supply-­market-demand approach to then identify potentially attractive markets that can be used as a source for investment ideas, for example Latin America. With this focus on commodities as the given market, we will look at oil, metals and agriculture. Finally, looking at demand sources, we see the equity markets of China and Japan as the prime beneficiaries. Having selected the relevant themes, instruments and markets, we go to the final step, structuring the product using the aforementioned building blocks. We will then base our final investment on what drives the theme. It is useful in thematic investment to have low correlation but high volatility between each of these sectors and areas. This structure allows for full capital protection and, at the same time, an attractive performance.

Thematic investing is there to allow families to get involved not just in emerging economies, but also emerging industrial sectors. Those ethically-minded investors and strategists can use it to invest in companies that perform well or have strong operational guidelines regarding renewable energy, for example. Healthcare and transport are two other options, sprung from the top-down view of key issues that affect globalisation such as the rising cost of healthcare due to an ageing population, or how green energy laws are squeezing the car industry. Many people see thematic investment as a straightforward type of ethical investment – it certainly can be, but it is in no way restrictive. Furthermore, investing in emerging economies, for example, commonly brings with it unsophisticated regulatory and infrastructural systems. The idea is to invest in this in its infancy, and sit out the shifts, reaping the benefits when regulation and infrastructure is in place and the new market is a fully-fledged and competitive part of the global economy.  

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