We are seeing some powerful drivers – from microfinance to consumer goods and services – that will change the lives of more people on our planet in a shorter time period than ever before.” With the ‘supply chain dominance’ theme, Deutsche believes that the best companies in a given sector have an historic opportunity to finish off their second-class competitors. This is because the historical costof- debt advantage of good companies over bad companies is about 50bps.
Right now, the advantage may be as much as 500bps for some sectors. Which leads to the ‘disequilibria’ theme. “Sub-scale asset management companies are for sale,” Kratz says. “Pharmaceutical companies can save by merging and collapsing two expensive sales forces into one. Utilities with contiguous geographic footprints know their deal-play books. Global leisure companies should carry out balance sheet-induced mergers.
The best companies with the best people will identify good companies with too many people and will draw up plans to create value.” While some thematic funds have just one or two themes running at any given time, the most popular with investors seem to be the multi-theme funds, such as Deutsche’s or the Zurich Global Thematic fund, which has also attracted a fair share of investment from Australia. Zurich recently sponsored a booklet published by Financial Standard on the different types of thematic investing.
Patrick Noble, a senior investment specialist at Zurich, points out that every economic cycle is different and investors looking for opportunities in the aftermath of the GFC will not find them by looking at events of the past. “Yet a common starting point for many investment decisions does just that,” he says. “Markets, by their nature, are typically forward looking and those choosing to reference their decision making to a benchmark that typically draws from historical events may find themselves poorly equipped to deal with the emergence of a new economic cycle.”