Thematic investing has captured the zeitgeist of our modern world by attracting strong capital flows targeting disruptive megatrends.
According to Morningstar, in the three years through Dec. 31, 2019, assets under management in thematic funds worldwide grew nearly threefold to almost 200 billion dollars.1 This represented approximately 1% of total global equity-fund assets, up from 0.1% ten years earlier.
At Qontigo we have advanced thematic investing since 2016 and have two dozen themes-based indices tracking modern concepts with above-average growth outlooks, including the STOXX® Global Millennials Index and STOXX® Global Artificial Intelligence Index to name only two. The concepts can be categorized within the three broad megatrends of demographics, climate change and technology.
The indices are largely grouped into two main classifications according to their stock selection method: one has a revenue-source thematic approach and the other one employs an innovative artificial-intelligence system that finds those companies most exposed to each theme.
We are now extending our thematic menu to include three new revenue-based concepts. We are introducing the STOXX® Global Pet Care Index, STOXX® Global Health & Weight Loss Index and STOXX® Global Video Gaming & eSports Index.
Positioning for growth
The three new concepts have been chosen for their long-term, cross-industry, structural growth potential. Let’s consider some of their highlights.
The number of gaming enthusiasts has grown steadily, transforming the industry into a mainstream spectacle whose revenues and budgets put it in line with Hollywood.2 More than 2.5 billion gamers and professional eSports competitors are estimated to connect across the world, and whose spending is expected to grow at an annual rate of 9%between 2018 and 2022, to 196 billion dollars.3
Obesity has been called the world’s most pressing health challenge today. By 2030, close to 50% of the world’s population is projected to be overweight. Governments’ and individuals’ efforts to combat this trend is underpinning unprecedented investment and growth in the categories of pharmaceuticals, health care and medical technology; specialized food & beverage; nutrition; and sports equipment.4
The STOXX Global Pet Care Index aims to capture a similar growth story. The economy of the pet products and services industry is driven by millennials and younger generations, who are spending more on domestic animals,5 but also by older cohorts’ increased pet ownership.6 One estimate calculates the global market for pet-related spending will grow to 31 billion dollars in 2021 from 12.5 billion dollars five years earlier.7
Methodology with targeted business exposure
Each new index selects those constituents from the STOXX® Developed and Emerging Markets Total Market Index and from certain Chinese markets8 with a substantial revenue exposure to business sectors associated with the concept in question.
The indices were designed to access companies that are both targeting and channeling growth in each theme. These companies are associated to specific categories within FactSet Revere’s detailed business classification, which helps map with precision those revenue streams linked to the overarching theme.
The STOXX Global Health & Weight Loss Index tracks companies involved in healthy dietary habits (for example, those generating revenue from five FactSet business categories, including ‘Fresh Fruits and Vegetables Retail’ and ‘Nutritional Supplement OEMs’); purveyors of sportswear and activity and work-out gear (i.e. ‘Fitness and Exercise Equipment,’ ‘Wearable Technology’); as well as those providing health care around obesity (‘Weight Management Biopharmaceuticals,’ ‘Respiratory Devices’).
Likewise, the STOXX Global Pet Care Index focuses on three groups of companies: dedicated retailers (business categories including ‘Internet Pet and Pet Supply Retail’); producers of pet supply (‘Pet Food Manufacturing’); as well as the veterinary industry (‘Veterinary Pharmaceuticals’ and ‘Veterinary Diagnostics’).
Finally, the STOXX Global Video Gaming & eSports Index tracks two groups of companies: producers of gaming software (FactSet business categories including ‘Console Games Software’ and ‘Online Gaming Systems’), and companies that supply the hardware and platforms used by participants (such as ‘Human Interface Peripherals,’ ‘Online Casinos’ and ‘Microprocessor (MPU) Semiconductors’).9
Liquidity observance and ESG Screening
Each index seeks to capture the thematic concept in an investable way that preserves replicability and liquidity. Only stocks with a given minimum trading volume are eligible.
Additionally, the three indices will exclude companies that Sustainalytics considers to be non-compliant with the Global Standard Screening (GSS)10 and those involved in controversial weapons. This is in line with increasing demand from asset owners and investors to comply with sustainability norms, a drive that has also emerged in thematic strategies.
The indices are weighted proportionally to the free-float market capitalization of the selected stocks multiplied by their aggregate revenue exposure to the respective theme’s sectors.
The characteristics of thematic portfolios
Thematic investing helps investors position themselves at the source of unique and seismic growth potential through the early identification of big shifts with long-term effects over society.
The portfolios rely on a predictive assessment of future growth as opposed to past performance; they place bets on longer time horizons than does the traditional equity allocation; and provide diversification from the sector allocation of market-capitalization-weighted indices.
Visit us in coming weeks as we explore the economic rationale driving our new thematic concepts.
Featured indices
STOXX® Global Pet Care Index
STOXX® Global Health & Weight Loss Index
STOXX® Global Video Gaming & eSports Index
1 Morningstar Manager Research, Global Thematic Funds Landscape, February 2020.
2,3 Newzoo, ‘The Global Games Market Will Generate $152.1 Billion in 2019 as the U.S. Overtakes China as the Biggest Market,’ Jun. 18, 2019.
4 Bank of America, ‘Globesity and Health & Wellness primer,’ 3 Dec. 2014.
5,7 Bookly, ‘The State of the Pet Industry: Pet Market Statistics and Future Trends.’
6 PR Newswire, Dec. 3, 2019, ‘Baby Boomers and Millennials are Redefining Modern Pet Ownership Trends, reports Packaged Facts’
8 China A shares, ADRs and P Chips are included. The STOXX Global Health & Weight Loss Index and STOXX® Global Video Gaming & eSports Index include a Global ex-China A version that does not consider China A securities.
9 The detailed methodology can be found in our rulebooks: www.stoxx.com/rulebooks.
10 Global Standards Screening (GSS) identifies companies that violate or are at risk of violating commonly accepted international norms and standards, enshrined in the United Nations Global Compact (UNGC) Principles, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights (UNGPs), and their underlying conventions.