The Importance of Thematic Investing

This guest article was written by Peter Esho, Chief Research Analyst - Invast Financial Services, Member - Invast Investment Committee

Mr. Esho is a leading member of Invast's renowned Investment Committee. He specialises in analysing the Australia stock market and property sector. Before joining Invast, Esho was part of Morningstar Australia's portfolio team where he rolled out the company's first

Australian listed smaller companies model portfolio to large dealer groups and institutional investors. He is also a regular contributor to ABC News 24, Sky News Business and BBC television.

One of the most important lessons I have learned in more than a decade in markets is that successful investors always have a long-term horizon. Every investor will get things wrong at some point in the cycle. It’s a part of life and we can’t always be perfect or correct. However, two things get investors out of trouble – quality and time. Investing in quality assets over a long period of time has proven to be an excellent method of creating wealth over the past few centuries.

Successful Investors

Take some practical examples. Online publication, The Real Deal published an interesting note on May 15, 2015 about Don Bren, regarded as being one of the most successful real estate investors in the United States. The California-based investor, who is the majority owner of Manhattan’s MetLife Building, is worth $15.2 billion, making him the richest real estate investor in the country, according to Forbes. His firm, Irvine Co., owns 500 office properties, 50,000 apartments and more than 40 shopping centers.

Bren is the perfect example of an investor who saw opportunity in the market collapse of the 1970s to purchase quality, long-term assets. By 1977, Bren and his investment partners started buying shares of the Irvine Co., a former cattle ranch-turned developer active in Orange County. Bren started with a 35% stake, and armed with a $560 million loan, spent the next few years buying out his partners to become the absolute owner of the firm by 1996. Along the way, he had to force out the great-granddaughter of Irvine Co.’s founder, James Irvine, according to Bisnow.

Taking a Stance

When Bren purchased Irvine shares in 1977, sentiment in the property space was at rock bottom. Many apartments in Manhattan were being given away because of their monthly maintenance costs. Today, some of those exact investments have grown by 1000x. Bren was a thematic investor – he had a conviction on long-term trends, population growth and the credit cycle - brave enough to follow his instincts in taking over the Irvine Co. at a time when share prices were low.

Bren is just one example of a successful thematic investor. There are many others who have created a lot of wealth through long-term thinking and backing quality names. There are also countless investors who have lost money on broad investment themes that didn’t work out. We all know companies which promised the world in biotechnology, online, mining or energy and destroyed huge amounts of value for shareholders.

Diversification Is the Key

So, investing over the long-term on a broad theme isn’t enough. Investors need to ensure that their investments have diversity. Some themes work out, others don’t. The world we live in is fragile and Mother Nature adapts to change. Black Swans occur (google this term if you haven’t heard of it before in the context of investing). Having a diversified basket of exposures is what helps get investors out of trouble in the long-term and gives them the ability to have a long-term horizon, which is important to successful thematic investing.

Invast PortfolioInvestor Platform

We’re very proud at Invast to have launched a dedicated platform to thematic investing. It currently has around 30 investment themes which investors can choose from. Each of these themes is carefully considered, measured and analysed by our investment committee and diversified enough to ensure that one single stock cannot have a large impact on the overall performance. A portfolio of themes further ensures that single stock exposure is minimised. We take the Don Bren vision of investing and add a new of technology to ensure that individual investors can take advantage of large investment changes. Bren was fortunate enough to have a $500m loan to purchase Irvine Co. Many people don’t have that luxury, but technology helps us bring the concept of thematic investing and diversification to the individual investor market.