A Thematic Affair
When the technology bubble burst in 2001, interest in thematic funds – funds that tap into an investment theme – became more muted. It’s only been in the last couple of years, that interest in thematic funds has resurfaced.
As a wrap for the year 2007 and a look ahead into 2008, A Fund Affair takes a look at the outlook for thematic funds. Our guest writer, Mah Ching Cheng, Research Manager at Fundsupermart.com examines what drives five themes in particular: Agribusiness, Global Climate Change, Luxury, Infrastructure, and Islamic Investments. Mah explains whether these investment themes are sustainable in the longer term, and how they can fit in an investor’s portfolio. Let’s start off with the theme of luxury.
Back in 2005, a Goldman Sachs report stated that Brazil, Russia, India and China (or BRIC) would be among the world’s largest six economies by 2050. Related to the expansion of the BRIC economies, was the increasing demand for higher quality products among the rapidly growing affluent population in these countries. This demand for luxury goods saw the emergence of several luxury funds. A luxury-themed fund looks for companies that sell high-end luxury goods and services, such as Christian Dior, BMW Group, Porsche and even Las Vegas Sands.
Rapidly growing economies have also put the theme of infrastructure in the spotlight. Infrastructure is the lifeblood and the nervous system of every successful economy. Highways, whether they are of the physical or electronic kind, make capital flows and trade in goods and services possible – they link people to economic activity. The Asian Development Bank has estimated that Asia will require $250 billion annually until 2010 to finance new infrastructure investments and to maintain existing facilities. Examples of infrastructure businesses include construction companies, ports, transportation companies, and utility companies.
In 2006, agribusinesses started gaining in popularity. An agribusiness fund primarily looks at investing in upstream and downstream companies that are used in the produc-tion of food. Population and income are two important factors underlying the demand for food and agricultural products. But the demand for products such as corn and sug-arcane is not entirely driven by population needs, especially when these commodities are used for other products such as biofuels. And with the rising cost of crude oil, more governments have turned to biofuel as an alternative source of energy, leading to a substantial jump in food prices and more lucrative bottom lines for many agri-businesses, making these funds very attractive of late.
Related to the agribusiness theme, is the campaign to become less dependent fossil fuels. The increased awareness and push towards switching to biofuels is in part due to the rising cost of crude oil. But another compelling factor has been the bid to reduce carbon emissions globally. This is just one of the drivers behind the global climate change theme, which has recently generated much interest resulting in the emergence of a number of specialized retail funds investing in companies active in clean energy generation and the energy efficiency.
Finally, Mah looks at how Islamic investments work. The influx of cash from 'oil-rich' Middle-Easterners has helped increase interest in these investments. Islamic funds are funds that invest in companies compliant with Islamic law – known as Shari’ah law. As such, Islamic funds cannot invest in firms from the gaming, tobacco, banking and insurance sectors. Investors who are looking for Shari’ah-compliant funds can look into the various options available, and find out more about their investment objectives and mandates before deciding to invest.
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