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New Themes For A New World

History may repeat itself, but the past is not a reliable predictor of the future. Investors should thus look beyond their historically grounded models and turn to more creative approaches for identifying investment opportunities. One such approach is 'thematic investing' ...

History may repeat itself, but surely that doesn’t mean we can use the past as a reliable predictor of the future, right? I mean... you wouldn’t actually trade on the outputs of historically rooted models alone, would you? As I see it, being a successful investor in today’s markets means being a lot more insightful and nuanced than prior generations of MPT-O-Philes. The world has changed.

And you know who really understands the changes? The British Columbia Investment Management Corporation. I was reading the BCIMC's annual report this evening, and I was really impressed at some of the insights and innovations this fund is coming up with. It's legit. Here’s a blurb:

“In markets where traditional theories and approaches may no longer hold true, bcIMC is stepping back to reflect on and identify new strategies that will provide our clients with their expected returns while also protecting the value of their capital.”

Keep reading. It gets better. Here are the four areas where the BCIMC sees the world as different from prior generations:

“Spreading risk across multiple asset classes has traditionally been the best way of reducing risk – the performance of recent markets has proven otherwise.”

“While markets are abundant with data, regulations, company mandates, and market participants distort the type and availability of information that long-term investors seek.”

“Volatility is the traditional measure of investment risk – however, some risks within our integrated global economy cannot be easily modeled and captured by volatility.”

“Company directors are expected to act in the best interests of the company and its shareholders – sometimes the wellbeing of other stakeholders is placed in higher regard.”

And so, you might be asking yourself, what is BCIMC doing in response to the 'new truths of finance'? As it happens, it’s dipping a few toes in thematics:

“Our approach is becoming more active and qualitative – thematic investing plays a key role. Using strategic and fundamental research, we will take advantage of long-term, global themes that will change future economies and present new investment opportunities. Our investments will span traditional asset classes, sectors and regions. And our global outlook allows us to benefit from the new engines of economic growth. We are also revisiting the distribution of assets. Our increasing focus on real assets supports the reallocation of clients’ assets from the more volatile public markets to more stable private markets. A forward-looking investing approach requires strategic foresight that is informed by extensive research. We have harnessed our own expertise and worked with a global management consulting firm to develop our program.” 

And that last part is rather interesting; BCIMC appears to be relying on an external research partnership to refine thinking around viable themes. It’s an approach that I think makes a lot of sense for resource-constrained organizations.

Anyway, what’s the first big theme for BCIMC? Food. Why? Well, because it’s the primary thing that people eat. So. It’s pretty common... I’ll just let BCIMC tell you why they are bullish on food:

“Food is our first theme. By 2050, global demand for food is expected to rise by 70 per cent. As emerging countries become wealthier, the dietary choices of their citizens will change. Meanwhile, regulatory reform, advancing technology, and climate change may alter food supply chains. Using our analysis, we identified 150 companies – private and public – as having investment merit. We have integrated our clients’ opinions into the program.” 

Mmmm. I like food... Smart.

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