FactSet Research : Rising Interest in Thematic Investing Presents a Compelling Opportunity

Rising Interest in Thematic Investing Presents a Compelling Opportunity Data Science and Technology

By FactSet Insight| January 4, 2022

When it comes to thematic investing, the market wants more. In partnership with Forbes Insights, FactSet surveyed 103 investment executives worldwide to better understand the rising popularity of thematic investing.

To test the sorts of offerings investors would find most attractive, the survey from March 2021 looked at five broad categories of thematic investment, including disruptive technologies and sector-/geography-based themes, and found interest is strong across the board. This comes as no surprise to Jeremy Zhou, Head of Index Solutions at FactSet. "What we're seeing is that investors are anxious to explore a wide range of themes, from autonomous driving and robotics to 5G."

49% of survey respondents indicated that ESG/sustainability is the theme investors are most interested in pursuing.

To further refine our analysis, the results were ranked again in terms of those who are the most interested in a given area ("very interested" plus "interested") as opposed to those who only show interest ("interested"). Viewed through this lens, demand is strongest for environmental, social, and governance (ESG)/sustainability themes, where 49% express strong interest. Thirty-five percent express strong interest in disruptive technologies (79% overall) and 30% in demographic/structural trends (85% overall). There is also strong interest for sector-/geography-based themes (26% "strong" and 85% overall) and smart-beta/alpha-seeking themes (23% "strong" and 75% overall).

Investor Interest in Thematic Investments Is Strong Across the Board A Deeper Dive into ESG

Each of the above segments represents a wide range of indexing opportunities. Zeroing in on ESG-the segment showing both the strongest interest and the overall most frequent interest-provides insight into the depth of this demand.

90% of respondents agree that ESG investing is becoming increasingly important for their organization. 82% agree that thematic instruments are an important means for achieving ESG investment goals.

Survey respondents say that today, on average, 26% of their portfolio investment resides in assets deemed ESG. However, this will increase steadily over the next three years, rising to an average of 32% within 18 months and to 40% within three years. Indeed, 90% agree that ESG investing is becoming increasingly important for their organization and 82% agree that thematic instruments are an important means for achieving ESG investment goals.

Investors Want to Collaborate

ESG may be the most frequently cited theme, but in truth, similar opportunities likely exist across the whole of the thematic-investing spectrum. A key finding in all of this is that investors want to actively collaborate with providers: 83% say they're interested in proactively working with issuers to develop customized themes. Additionally, 82% say they're interested in providing seed capital to help fund issuers develop customized thematic funds. "The key is to engage with target investors to get a sense of the sort of themes and structures they are looking for to meet their investment objectives," says Zhou.

Whatever the form or direction of this collaboration, note that in choosing themes, 45% of respondents say they tend to favor quantitative processes for selecting and sizing thematic investments (this falls to 35% for European respondents). By contrast, 20% describe their processes as qualitative while about a third, 36%, indicate their approach is a mix.

The Industry Is Hungry for Innovative Investment Ideas

This FactSet/Forbes Insights research initiative also took the opportunity to gauge investors' general satisfaction with current portfolio performance as well as with providers and their openness to new or expanded relationships.

95% of investors are interested in exploring innovative investment ideas and 91% are open to new relationships with other providers.

Today, 85% are extremely satisfied with their portfolio's performance and 90% are satisfied with their current slate of asset managers and associated providers. Nonetheless, 95% are interested in exploring innovative investment ideas and 91% are open to new relationships with other providers.

The survey highlights a wide range of issues that can influence investors to work with a new asset manager or associated provider. As seen in the table below, when looking at the overall results, respondents can be influenced by the entire list of attributes included in the survey. For this reason, our analysis also highlights those areas that can most influence relationship decisions, which include regional expertise, access to exchange-traded funds (ETFs) and exchange-traded products (ETPs), and digital capabilities.

Influence of Attributes

Source: FactSet/Forbes Insights

Read more in our previous articles: Tracking Investor Appetite for Exchange-Traded Products and Thematic Investing Catches Fire. Download the eBook, Investors Are Hungry for Thematic Investments: It's Time to Seize Opportunity and Build New Index Products.

Disclaimer: The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.