In today's investment world, the added value of portfolio managers is measured by the outperformance, or alpha, they can deliver. In a landmark paper, Fuller  suggests that there are three sources of alpha:
Trends investing aims to exploit the analytical edge in grasping the dynamics of secular change, and to take advantage of the systematic behavioral biases displayed by people.
Important biases in trends investing are over- and underreaction. People have a tendency to overreact to new, exciting technologies that promise to revolutionize entire industries. When these new technologies fail to live up to unrealistically high expectations, disappointment sets in and expectations are pared back drastically. However, when these technologies have overcome their teething problems and customer uptake starts to accelerate, people are slow to pick up on this new information. This empirical pattern of overreaction to early-stage new technologies and subsequent underreaction to later-stage acceptance of these technologies, forms the basis of Gartner's Hype Cycle. This is an important input in our investment process.
At the same time, people also have a tendency to grossly underestimate exponential growth. This is well-documented, for example, in a widely cited experimental study by Wagenaar and Sagaria .
These behavioral biases are sources of alpha, as they may lead to unrecognized longer term growth opportunities.
There are three main drivers of secular change. It is either driven by government policies, socio-demographics or technology. Technology driven change is most interesting for trends investing. The speed and extreme specialization make it hard to predict the exact way in which new technology will proliferate. Examples are automation, digitization and hyper-connectivity.
The Gartner hype cycle is a very helpful tool, providing insights into the best portfolio construction strategy. In the first two stages of the hype cycle (technology trigger and peak of inflated expectations) it is often not yet clear who the winners will be. As the investment community gets excited about a trend and the media pick it up, momentum increases and companies enter the stage where the tide raises all boats: every company that can be associated with the trend increases in value. Expectations are very positive and overreaction can result in bubble-like valuations.
Our investment approach during this first stage is twofold. First of all, since there are no clear winners yet, we believe it is best to construct broad baskets of companies with good (preferably pure) exposure to the technology instead of focusing on a few companies. A second approach is to invest in companies that facilitate the new technology. This is the ‘picks and shovels’ approach. Instead of trying to invest in a (presumed) star gold miner during the gold rush, our approach is to invest in the shop in town that is supplying the picks and shovels. Or, in today’s context, the suppliers of sensors and software that all producers of self-driving cars need.
After the hype has peaked, the next phase is difficult from an investment perspective. During the ‘trough of disillusionment’ and part of the ‘slope of enlightenment’, sentiment is still very negative, companies cease to exist and Merger & Acquisition activity peaks. During this shake-out, winners will emerge, but it is hard to invest during this period, which we dubbed the ‘investment chasm’.
The second stage of investment opportunity comes along halfway the ‘slope of enlightenment’ and continues onto the ‘plateau of productivity’. This is where we find the companies that have survived the shake-out period and are able to continue developing the technology. The investment opportunities are especially present during the ‘slope of enlightenment’, where sentiment is still negative because many investors witnessed the crash period. The portfolio approach during this phase is to identify long-term winners and concentrate portfolio holdings into these names as opposed to the basket approach in phase one.
The Robeco trends approach combines multiple, low-correlated trends in one portfolio. This allows for substantial diversification benefits, making the portfolio less vulnerable to trends that fall out of favor in certain periods. Furthermore, we believe in long holding periods of typically three to five years. As it is very hard to pin-point when a trend will start to perform, we position for the long run.
The information contained on these pages is for marketing purposes and solely intended for Qualified Investors in accordance with the Swiss Collective Investment Schemes Act of 23 June 2006 (“CISA”) domiciled in Switzerland, Professional Clients in accordance with Annex II of the Markets in Financial Instruments Directive II (“MiFID II”) domiciled in the European Union und European Economic Area with a license to distribute / promote financial instruments in such capacity or herewith requesting respective information on products and services in their capacity as Professional Clients.
The Funds are domiciled in Luxembourg and The Netherlands. ACOLIN Fund Services AG, postal address: Affolternstrasse 56, 8050 Zürich, acts as the Swiss representative of the Fund(s). UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zurich, postal address: Europastrasse 2, P.O. Box, CH-8152 Opfikon, acts as the Swiss paying agent. The prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual and semi-annual reports of the Fund(s) may be obtained, on simple request and free of charge, at the office of the Swiss representative ACOLIN Fund Services AG. The prospectuses are also available via the website www.robeco.ch. Some funds about which information is shown on these pages may fall outside the scope of the Swiss Collective Investment Schemes Act of 26 June 2006 (“CISA”) and therefore do not (need to) have a license from or registration with the Swiss Financial Market Supervisory Authority (FINMA).
Some funds about which information is shown on this website may not be available in your domicile country. Please check the registration status in your respective domicile country. To view the RobecoSwitzerland Ltd. products that are registered/available in your country, please go to the respective Fund Selector, which can be found on this website and select your country of domicile.
Neither information nor any opinion expressed on this website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco Switzerland Ltd. product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports.