Daniel Roarty, Chief Investment Officer of AllianceBernstein’s Sustainable Thematic Equities team, and Walt Czaicki, Senior Vice President and Senior Investment Strategist for Equities at AllianceBernstein, define thematic investing as a way to create stronger, diversified portfolios while mitigating risk and promoting positive social impact.
Roarty explains thematic investing as “a benchmark-agnostic style of investing that’s focused on large, future opportunities.” While benchmarks are inherently backward looking, because they reflect on the past success of each company and then reward that success with a bigger weight in the benchmark, thematic investors look forward rather than backward to identify powerful trends rooted in the present and future.
Selecting companies to invest in, through a sustainable, thematic approach, starts by identifying the world’s biggest challenges, and then noticing what’s being done to solve them. Through this lens, it’s easy to identify where innovation and growth is happening. For example, allocating to companies focused around globally relevant ESG themes such as climate, health and empowerment not only generates a positive social impact, but can be some of the most attractive themes in a portfolio, Roarty explains.
Moreover, the integration of ESG factors can simultaneously promote growth while reducing risk. Roarty describes his multifaceted approach to manage risk in his portfolios, which is a combination of a collaborative team structure, routine review of risk metrics, and diversified thematic exposure. Roarty and his team actively manage the portfolio weighting to optimize the risk-reward trade-off.
Sustainable thematic investing is important socially, but it’s also equally important financially. “Social issues aren’t things that impact companies decades down the road, they’re things that impact companies today,” says Roarty. Though social and environmental issues like climate change and gender equality can feel far off in the future, it’s vital to remember that they’re issues of today. This knowledge puts a portfolio in perspective and leads to a better future, economically and socially.
To learn more, catch a replay of AB’s recent webcast: Sustainable Thematic Investing in a Dynamic World.
Topics Include:
- Review how an active, highly selective sustainable thematic approach can identify opportunities beyond traditional benchmarks
- Discuss how the integration of ESG factors can enhance risk management
- Examine how sustainable thematic equities fit into a diversified investment portfolio