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Low-cost digital wealth manager Nutmeg plans to launch thematic investment portfolios, hoping to capitalize on a growing trend among younger savers towards this style of investing.
Thematic investing in areas such as environmental, social and governance (ESG) and technological transformation has grown in importance over the past decade, led by investors seeking both higher returns and a positive impact for their money.
As of December 2021, according to Morningstar data, $850 billion was invested globally in thematic equity-based funds, but this amount has since fallen to $550 billion as of September 2023 due to a mix of market movements and capital outflows.
“We all have an idea of what the future of the world will look like and we want to provide investors with a way to achieve their financial goals and also look at themes of interest,” said James McManus, director of Nutmegs investments.
These portfolios are designed to allow retail investors to access long-term structural growth trends without having to compromise on risk, he said, recognizing that the investments will provide exposure to medium-sized public companies. and large-cap companies that will benefit from these trends, rather than the small private companies that are often at the origin of innovation.
Nutmeg, bought by JPMorgan in 2021 as part of a transaction valuing it at around 700 million, has more than 5 billion in assets under management on behalf of 230,000 investors. It has struggled to achieve profitability as it has expanded, reporting an operating loss of 30 million for 2022, compared to 20 million in 2021.
The new portfolio types, the first product launch since its acquisition, offer investors the choice of up to 20 percent exposure as part of a more diversified portfolio across future-oriented themes. These are: technological innovation, resource transformation and consumer evolution.
Nutmeg portfolios are almost entirely made up of low-cost exchange-traded funds. The manager, which McManus calls competitive with private banks for all wealth levels, charges a management fee of 0.75 percent on assets up to 100,000.
The company is part of a new wave of so-called robo-advisors that offer digital wealth management products to investors with smaller pots, including companies such as Moneyfarm and Wealthify.
Moneyfarm also offers thematic investment products and traditional asset managers are jumping on the trend. Janus Henderson offers thematic stock investment solutions on its website to generate interest in healthcare, technology and sustainability.
Financial industry insiders are divided on the merits of thematic investing. Some believe it offers a source of diversified returns; others believe that themes have peaked at the point where retail investors can access them.
The themes’ dynamic attractiveness has proven resilient in challenging times for markets and different from traditional investment approaches, a Citibank quantitative analyst said in a March 2023 note.
In 2022, the quintile of the most attractive themes outperformed the least attractive themes by 9.4%; it also outperformed the MSCI World by 4.6 percent.
Julien Sevaux, chief executive of wealth manager Eighteen48 Partners, said he was not too interested in thematic investing. It is invariable that an equity manager dealing with themes such as the aging of the population [or] renewables will try to tailor the portfolio to themes instead of doing a really good bottom-up analysis.
Thematic investing is clearly prone to hype cycles, Morgan Stanley analysts wrote in a note in February this year, adding that they nonetheless believe thematic investing will see a continued structural inflow of assets, gradually taking the share of sectoral and geographic flows.
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