Whilst walking our dogs last week, my daughter and I walked into a field that dipped down into a shallow valley and in the hollow a stream-like mist enveloped the hedgerow, broken only by a single ray of light from the sun set low in the sky. I’m not a particularly poetic person, but it did remind me of my favourite poem, learnt in the early years of my secondary school education: Ode to Autumn by Keats. The opening words evocative of the scene before me: “season of mists and mellow fruitfulness.” Only one week later and we are technically in winter (granted from a meteorological, not astronomical perspective). The mellowness of which Keats wrote has already turned chilly with the morning grass white with frost.
The transition to autumn and then to winter made me think of the cyclicality that resides within our lives. Whether that is the produce we associate with different seasons or the different celebrations across the year; each a marker to the passing stage of time. Likewise we can look to cycles in investing.
A tenuous link perhaps, but within investing we see cycles where styles of investment or particular sectors move in and out of vogue. Personally, I have always been somewhat dubious of shorter-term cyclical investing – those that seek to take advantage of the ebbs and flows of the economy; in contraction looking to non-cyclical sectors or conversely in expansion allocating to cyclical. My preference has always been to consider the longer-term cycles or emerging themes, whether those are geographical – identifying the emerging economies that are driving innovation and growth – or consumer-based, such as the need for clean technologies or new digital advances that improve efficiencies.
It would seem that taking a thematic approach to investing is on the rise. Certainly, if we are to believe the title of an article in The International Banker: “the rise and rise of thematic investing” This is a nicely written and compelling piece, although as a believer in thematic investing I may be falling foul of confirmation bias. To counter the warm glow of belief, recommended reading would include the CFA Institute piece: “Thematic Investing: Thematically Wrong?” where the author likens thematic investing to venture capital – “for every 10 products launched, most fail to generate interest from investors.” I felt particularly chastened with the words “thematic investing isn’t just performance chasing, it’s performance chasing with a narrative.” I agree that it is the narrative that makes the allure of the theme so attractive – it makes it relatable and believable. Maybe I am just duped by storytelling! We at least agree that themes that underpin longer term trends, such as ESG, are probably a better bet and – again to steal from Keat’s Autumn – avoid the passing fads: “Where are the songs of Spring? Ay, where are they?”