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What is thematic investing?
Cathie Wood, CIO of Thematic Investment Services: Thematic investing is really focusing on the big themes that are going to move the markets forward during the next three to five years. They tend to be disruptive. Innovation is a big part of these themes, they tend to be cross-sector in their scope, and when we get them right we deliver a lot of alpha.
Is is true that thematic investing important is a medium -to-longer-term investment approach?
Cathie Wood: Absolutely. The themes in the portfolio right now we actually think could be longer than three to five year themes. But for the most part our thematic focus is on investable themes over the next three to five years.
Can you describe your approach to investing? What’s your style and how does it differ from other thematic-type funds?
Cathie Wood: Our style may not be very different in terms of seeking out the big themes. I think our research is a very big point of differentiation. We have a research service called Research on Strategic Change, which is specifically focused on big themes from 30,000 feet up, not really even focused on stocks as they begin to try to answer big questions, like how are we going to solve our national security issue as it relates to energy. We started out with that big question, and we ended up with hybrid electric vehicles about three to four years ago, which we think is going to be or already seeing that it’s going to become a very big part of the solution. In terms of how we differentiate ourselves from competitors, besides research, it’s the second step of our process. The second step of our process is macroeconomic, and especially at turning points in the cycle we can drive a lot of alphas by picking the turns correctly.
What are the key themes in the portfolio at the moment?
Cathie Wood: Right now we have five themes in the portfolio.
• Heightened Cyclicality
• The Genomic Age
• Climate Change
• Web 2.0
• The Emergence of the Middle Class in the Developing World
The latest one we introduced was called Heightened Cyclicality. Basically we were trying to answer the question what is going to happen in the aftermath of the most massive fiscal and monetary stimulus we’ve seen globally; actually it’s bigger than even during the Depression, so a big question, and we think there’s some very interesting answers. The Genomic Age, we’re working on that black book right now, the research is pretty much complete; very exciting theme. Abating climate change was our last black book, again his Research on Strategic Change effort, writes big black books exploring some of the themes or answering big questions that we’re asking. Abating climate change, of course, is a very big one. Web2.0, it is the extension of a theme that we started basically five, six years ago called The Broadband Revolution
, and now it is evolving into a much bigger theme called Web2.0. And then finally the emergence of the middle class in the developing world. China has just hit that inflection point. The inflection point we think is most important, GDP per capita at $6,000 at a purchasing power parity basis, and usually that is the point at which consumption as a share of GDP in an economy starts to rise.
So what resources do you have been available? It strikes me that you need an enormous amount of resource to be able to cope with the amount of information you must be processing to take advantage of these situations.
Cathie Wood: Absolutely. That is why it is a luxury to be working here at AllianceBernstein. We have incredible research resources. I don’t think, I may be wrong on this, but I don’t think there is another effort quite like our Research on Strategic Change. Again, operating from 30,000 feet up and do not have to focus on stocks on a day-to-day basis. Then we have more than a hundred analysts around the world. The first thing I do in the morning when I walk in around seven o’clock is checking our chat lines and see what Asia’s talking about, and see if anything thematically or from a macro point of view is going on to help us shape our portfolio. We have economic research; seven economists, headed up by Joe Carson, who sits on our Investment Strategy Committee, around the world. Again, we’re in touch with them constantly. And then, of course, we have another effort called Research on Early Stage Growth focused on private companies because we do have a venture capital fund. So we are able to see some disruptive forces in the pipeline before they become public.
How do you decide which stocks to buy in which themes?
Cathie Wood: As Research on Strategic Change is doing its research, they come across companies who are right smack in the middle of a theme. Those companies come into our discussion during a very long meeting where we focus on the top-down steps of our process on Fridays. We spend a lot of time going through their research weekly as they’re doing it. Companies naturally come into the conversation. That gives us an opportunity to go to our fundamental analyst. We have more than a hundred fundamental analysts around the world and ask them what they know about these companies, and then we have usually the two sets of analysts dialoguing and keeping each other up on what they know about those stocks. It becomes very clear, after a while, which are going to be the big winners in a theme.
Can you ever have too much research?
Cathie Wood: I can’t. I will take all the research that I can; anything to give us an edge. How we manage it is very important, so I have a deep bench on my own team, and then we have an incredibly deep bench throughout the world in terms of analysts helping us to screen through ideas.
Could you sum it up why invest in AllianceBernstein and why now?
Cathie Wood: In terms of why now, I think we have never seen as many disruptive forces at work in the world as we are seeing now, and our portfolio is shaped to capitalise on them. Why AllianceBernstein? I think you will not find the depth of research nor the breadth of research that we have anywhere else in the world.