Allocating to Thematic Investments

This is the Accepted Manuscript of the article "Allocating to Thematic Investments, Koye Somefun, Romain Perchet, Chenyang Yin, Raul Leote de Carvalho", published by Taylor & Francis in the Financial Analysts Journal, doi/abs/10.1080/0015198X.2022.2112895

21 Pages Posted: 16 Sep 2021 Last revised: 15 Sep 2022

See all articles by Koye Somefun

Koye Somefun

BNP Paribas Asset Management

Romain Perchet

BNP Paribas Asset Management

Chenyang Yin

Quantitative Research Group; BNP Paribas - BNP Paribas Asset Management

Raul Leote de Carvalho

BNP Paribas Asset Management

Date Written: September 7, 2021

Abstract

In this paper we introduce the notion of themes as an additional investment dimension beyond asset classes, regions, sectors and styles, and we propose a framework to allocate to thematic investments at a strategic asset allocation level. The goal of thematic investments is to provide the means to invest in assets that have their returns significantly impacted by the structural changes underlying the theme. Such changes come about through megatrends that shape societies: Demographic shifts, social or attitudinal changes, environmental impact, resource scarcity, economic imbalances, transfer of power, technological advances and regulatory or political changes. Allocating to themes requires discipline because thematic investments are not only exposed to the theme but also to the traditional risk factors. Our approach to allocating to thematic investments uses a framework based on robust portfolio optimisation, which takes into account the expected excess return derived from the exposure to the theme as well as exposures to traditional risk factors. As an illustration, we provide an example where thematic investments in energy transition, environmental sustainability, healthcare innovation, consumer innovation and disruptive tech are added to a traditional multi-asset portfolio.

Keywords: Thematic investing, Themes, Portfolio construction, Portfolio Optimisation, Asset Allocation, Core satellite.

JEL Classification: D29, G11, L19

Suggested Citation

Somefun, Koye and Perchet, Romain and Yin, Chenyang and Carvalho, Raul Leote de, Allocating to Thematic Investments (September 7, 2021). This is the Accepted Manuscript of the article "Allocating to Thematic Investments, Koye Somefun, Romain Perchet, Chenyang Yin, Raul Leote de Carvalho", published by Taylor & Francis in the Financial Analysts Journal, doi/abs/10.1080/0015198X.2022.2112895, Available at SSRN: https://ssrn.com/abstract=3923605 or http://dx.doi.org/10.2139/ssrn.3923605

Koye Somefun

BNP Paribas Asset Management ( email )

Paris
France

Romain Perchet

BNP Paribas Asset Management ( email )

14 rue Bergere
Paris, 75009
France

Chenyang Yin

Quantitative Research Group ( email )

Paris
France

BNP Paribas - BNP Paribas Asset Management ( email )

Paris
France

Raul Leote de Carvalho (Contact Author)

BNP Paribas Asset Management ( email )

14 rue Bergere
Paris, 75009
France
0033158972183 (Phone)

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