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 content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the 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/Robeco Switzerland AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.