-Why do you see value right now in megatrends and how do you decide the choice of themes?
-The value of megatrends within clients’ investment portfolios is very relevant. The world changes and through these solutions we allow investors to participate in these long-term changes, often through innovation, a mismatch between supply and demand for a product or service, etc. It is about determining what those megatrends are in the long term, often between 30 and 50 years. When it comes to implementing it in client portfolios, we have to ground the concept and make it more intuitive.
At Allianz GI we have identified four megatrends: resource scarcity, urbanization, demographic and social changes, as well as technological innovation. Identifying the best companies through an active management process is very relevant to adapt at all times to the relevant megatrends and select those companies with the highest degree of purity, which allows us to have a diversified, global and unrestricted portfolio, from the point of view composition and geographic view.
-Allianz GI’s multi-trend fund has just made changes … education has come out and infrastructures have entered, why this change?
-Within this active management process, the education theme, implemented in the portfolio at the end of 2019, has been one of the investment ideas that has contributed the most to the positive profitability that the Allianz Thematica fund has offered in recent months.
We find ourselves in an industry that, despite having a growth of 20-30% for the next few years, is very young in emerging markets. We are beginning to see regulatory risks and we have not been able to know all the news that is happening in China, some of these businesses are closing because they do not agree with the authorities. We do not have, from a valuation point of view, enough investment universe when it comes to selecting companies that allow us to play and invest in this matter. That is why we have decided to bring up the idea of education, which has worked very well and we continue to see potential in the medium and long term. It does not mean that it will not re-enter the fund’s portfolio in the coming months.
We have replaced it with the theme of infrastructure investment. The investment spectrum is global, affects developed and emerging markets. In addition, there is not only important private capital to invest in this issue but also public capital, through governments, such as the new Biden Administration in the US, the EU Grean deal, the five-year plan by the Chinese authorities , they are putting infrastructure in the main axis of their investments for the coming years.
We see the theme from different angles. On the one hand, there is the traditional infrastructure, such as the construction and repair of highways, roads, airports, bridges, tunnels, etc. On the other hand, the infrastructure related to technological innovations, such as telecommunications that support 5G. Also important are companies that provide material to construction companies and engineering companies. Here also the raw materials stand out, to carry out the construction of infrastructures: cement, steel, copper, etc.
Every time we include an investment theme in the Allianz Thematica fund, we look for between 15 and 25 companies. For example, the global mining company Anglo American or the company that provides highly developed platform technology solutions and an ally of the US government, such as Motorola Solutions.
-What is the theme that you see the most potential for and for what reason?
– Betting on one is complicated. Investment themes vary depending on the economic cycle, the regulatory issue – which can be an accelerator – and social and demographic circumstances.
Because an investment theme in the long and medium term produces very reasonable investment opportunities, it does not mean that at each market moment it is the best option.
In this case, there are three great ideas or types of investment themes that we must have in a diversified equity or global portfolio. First of all, there is everything related to the scarcity of resources and sustainability, for example, the new sources of clean energy generation. Second, innovation, not only understood from a technological point of view such as artificial intelligence, but also in the logistics, financial, food, distribution, agriculture sectors …
The subject of health is very important. We are very positive in biotechnology. We see how it is being used for the development of vaccines for covid 19, as in the case of Moderna. We think that biotechnology is becoming a very reasonable investment theme.
Third, ideas related to demographic and social changes such as the investment theme related to the pet and animal business. There are more and more single parent homes, more and more people are living alone in cities and they need company. It is a long-term investment theme, which is not linked to a specific economic cycle situation. We think that every time we live years and we do it with a better quality of life, the fact of having a portfolio investment theme that agrees with these ideas is very relevant.
-Apart from the issues, how is the process you follow in choosing companies?
-We take into account, in the first place, that it is not a temporary investment idea, that it has structural growth in the medium and long term. secondly, that we can build a sufficiently diversified portfolio so that the financial result is motivated more by the subject itself than by specific singularities that may occur to particular names.
We not only look at the degree of exposure and purity to the investment themes in which we want to be invested, but we also attach great importance to the fundamental analysis of the companies. The degree of purity and exposure does not come from a balance sheet with a statement of annual accounts, but rather from knowing what the situation is today and also what the development plans are, which will increase exposure to different investment ideas. .
Here we have to add that knowledge of structural growth characteristics, for example, that they have entry barriers, that they are leaders, that they have a management team aligned with the business strategy and that they have a philosophy of increasing the sustainability of that company. We also have to see a portfolio that is diversified, resilient and that, from an attractive valuation point, is an interesting opportunity at every market moment.
11: 41â € ‹-Do you think that megatrends can also adapt to more conservative investment profiles with mixed or profiled funds?
-You have to understand the situation of both financial knowledge and investment experience, such as the profitability-risk profile that each client may have, but investing in these investment themes adds value, diversifies and makes the general behavior of the portfolio be more efficient.
There are two basic alternatives. The first is that the investor decides one or two themes and that he makes the decisions at different times to go in and out. Here the risk increases.
The second option is to do it through active management, with a global equity strategy. Here it is very important that it is with a medium and long-term time horizon and that it is the management team itself that makes the decisions on what investment topics it wants to be invested with, with what weight it wants to be in each of them, based on conviction, valuation and market cycle. It is also important that it offers the best diversification by choosing the best companies on the subject in which I want to be positioned.
The answer is yes, and the consequence is to adapt it to the particular circumstances of each investor.