Investment Themes are an important part of how the Fund prioritises its investment research and activities. We have defined Investment Themes as long-lasting impacts on economies and capital markets, that will normally be fairly immune to the ups and downs of the business cycle.
Thematic investing is about identifying and investing into return streams positively exposed to the themes, and avoiding those negatively exposed. Our investment thesis is that these exposures will not usually be fully-priced by markets given they are "slow burn" in nature and subject to uncertainty. Thematic investing is therefore very much aligned with the Fund's long-term investment horizon.
The Fund has three broad Investment Themes we believe will provide ample areas of investment opportunity in years to come:
There is a compelling scientific consensus to suggest that many existing resource usage patterns are not sustainable. We think this presents an investment opportunity because impacts may not be fully priced-in given short-term investment and policy horizons.
The Resource Sustainability theme lens is an important element of the Fund's focus on Energy, Rural Land and Timber opportunities, and the on-going sourcing of potential investments in these areas.
Emerging Markets Segmentation
Investing directly into emerging and frontier markets offers the potential for higher risk-adjusted returns. Importantly, we don't see this potential as a function of the well-known higher trend growth rates of these countries; we see it more reflecting various capital market inefficiencies in these markets and international investor constraints. Emerging markets may also offer portfolio diversification benefits to the extent we can invest in domestic-focussed companies with return streams that are more influenced by local than global economic conditions.
Our private markets investment in Chinese infrastructure is an example of a Fund investment that is aligned to this theme.
Evolving Demand Patterns
Population ageing and other demographic shifts, such as increasing urbanisation in many developing countries, can be reasonably well identified. But as their effects are uncertain and take time to work through, they may not always be priced in by investors more focused on shorter-term factors.
We can access this theme by investing in sectors with positive demand implications, such as high quality protein providers and health and aged-care businesses. Our investment in Metlifecare is an example.