‘We seek to find the winners of the next decade’

‘We seek to find the winners of the next decade’

27-05-2019 | Insight

Some investment themes do not play out in a year. Robeco’s head of Trends and Thematic Investments Mark van der Kroft talks about the strengths and unique approach of his team, as well as the challenges trends investors face and the reasons behind the current revival of interest in trends investing.

  • Mark van der Kroft
    van der Kroft
    CIO Fundamental and Quant Equity

What are the key trends or developments Robeco Trends & Thematic benefits from?

“When we started analyzing the data, we discovered that over the years there have been many more losers than winners in terms of stock market performance. We believe this extreme skewness will persist due to the ever-changing nature of our economy and society. These changes combine into three big megatrends: transforming technologies, changing sociodemographics, and mankind’s need to preserve the Earth.”

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People say trends investing is enjoying a revival – do you believe this is the case?

“That’s an interesting question. We have indeed seen an increase in demand for our trends-based strategies both in Zurich and Rotterdam. On the one hand, we have seen an enormous increase in demand for passive investments, which are cheap and easy to buy, and don’t entail the risk of getting it wrong versus the benchmark. On the other hand, this is creating opportunities for truly active investment solutions that offer the alpha investors are still looking for.”

“Another driver is the potential for what I would call a low-return environment in the next couple of years, which will make the alpha we generate in trends investing even more important. 4% outperformance is simply worth more in a flat market than in a market that is up 20%. Investors want solutions in their portfolios that provide excess returns – and these returns become more important in a low-return market. In addition, we have seen a growing trend towards sustainable investment solutions, which is creating demand for our Zurich-based thematic funds.”

What are the challenges of trends investing?

“A key challenge is distinguishing long-term trends from short-term hypes and monetizing the longer-term opportunities. Our research is based on identifying these trends and selecting those companies that are able to benefit from secular or disruptive changes. Further to that, we closely monitor developments within the selected trends themselves and keep an eye out for the deepening of trends, as we have seen with technology”.

“That said, it remains important for our strategies to offer excess returns versus the required benchmark. The challenge is that we really take a long investment horizon while at the same time striving to avoid short-term noise and short-term performance pressure.”

“And that means sometimes it can be tough to withstand pressure, as there are and will undeniably be periods in which our distinct style and investment philosophy do not work. It simply takes time for trends or themes to play out, so patience can be a virtue. However, this is a challenge that our team understands, and of course our clients understand the way we build our portfolios.”

How does Robeco’s approach differ from that of peers? What makes it stand out?

“I think we stand out for several reasons. First and foremost, we have been investing in trends and themes for a very long time – from around the late 90s, when our first fund was launched. Robeco Trends & Thematic Investments is unique not only because of its history, but also because of its team of portfolio managers and analysts. Most of them have worked at the company for a long time, but also been responsible for a specific fund for 15 years or more.”

“Second, in-depth research has always provided the strong foundation for all our investment strategies, and within Trends & Thematic Investments, we have developed a broad research-based toolset. We have established ourselves to be best-positioned for investing in long-term trends.”

“Finally, sustainability is at the heart of our thematic approach. Trends & Thematic Investments is in fact part of a combined, complementary investment platform. Trends investing is what we do in Rotterdam; thematic sustainable investing in Zurich. In my opinion, this formula of one team in two locations with a long-term, forward-looking and benchmark-agnostic view is a unique proposition.”

What is the bright spot and, conversely, what is the flip side?

“The bright side – or what I would call ‘different’ side – is that it is a truly active, long-term and forward-looking investment strategy. It does not look into the past when it comes to portfolio construction and therefore is not benchmark-oriented. We ask ourselves which industries and, in particular, which companies will be the structural winners in the next decade, following on from the structural and disruptive changes that we are witnessing today? And, as a result, which companies will not be part of that future?”

“So we do not spend time on past winners like large benchmark weights, but try to find the winners of the 2020s. Most of all, trends & thematic investing is about avoiding the losers – companies or industries which do not or cannot adapt to a changing and disruptive world. The result are benchmark-agnostic portfolios, with higher relative risk than other more benchmark-oriented and traditional funds.”

“The flip side is that periods of lagging performance can be tough, but we firmly believe that over a longer time span, our strategies pay off, which history confirms.”

Have the trends investing funds actually outperformed?

“Indeed they have. Most of our funds in Rotterdam and Zurich have achieved outperformance and, in some cases, significant outperformance based on a five to ten-year horizon. The flagship fund Global Consumer Trends has, for instance, generated an annualized outperformance of more than 8% over the last 10 years1. Other strategies of our combined platform have shown strong outperformance as well, including our Global Growth Trends and financial fund range to most of our sustainable fund solutions managed by RobecoSAM.”

How do you see the future of trends investing?

“We are very positive about the future of trends investing. Of course, we’ve had an enormous tailwind over the past three years, as our investment style has benefitted from a macroenvironment where growth has been scarce so growth stocks have been bid up. In that sense, I would not be surprised to see some setbacks in the short term, because nothing goes in a straight line.”

 “Nevertheless, we are observing a number of secular trends that will substantially change the way we operate and live in the future. Digitalization is enabling new production and consumption styles, and the increasing awareness that we need to use natural resources more sustainably will aid efforts to achieve the targets formulated in the United Nation’s Sustainable Development Goals. Our strategies are very well positioned to capture respective investment opportunities.”

“If you take a longer-term view, the popularity of active and high-conviction thematic investment styles will continue to grow. And we have a great opportunity at Robeco to benefit from that trend. We have strong, highly experienced teams both in Rotterdam and in Zurich with investment strategies which deliver on their longer-term promises. That combination, along with a strong sustainable footing, makes us truly unique. All in all, we are really well positioned to benefit from the positive outlook we have for trends and thematic in general.”

1 Source: Robeco. D-share, gross of fees. In reality, management fees and other costs are charged. These have a negative effect on the returns shown. Periods shorter than one year are not annualized. The value of your investments may fluctuate. Results obtained in the past are no guarantee for the future.
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