Pursing investment themes

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AXA Global Investor’s Head of Investment Strategy Keith Poore talks about investment themes that have been effective in the past six months.

Wednesday, May 19th 2010, 6:49PM

The Global Themes Fund, which started in September aims to take advantage of structural trends that you usually read about on the front pages of the newspaper, not just the business section, eg: clean energy, commodities, water resources. It does this by investing in liquid exchange traded funds (ETFs).

Poore says the themes it targets are usually under-represented in most investor portfolios so the fund is designed to provide a satellite exposure to a more traditional global equity allocation. Of the six themes presently targeted, Emerging Markets, Commodities and IT all outperformed the benchmark MSCI World Index for the first 6 months while Clean Energy, China and Water Resources underperformed.

Emerging Market stocks has had a particularly strong six months with healthy GDP growth numbers contributing to their ongoing outperformance. This was despite low returns from China which was held back by concerns over policy tightening. Tighter policy in China is a prudent move given GDP and housing prices are expected to grow 10% this year. AXA Global Investors views the recent weakness in China stocks to be just a temporary setback in the growth story for the 21^st century.

Information Technology also performed well, largely on the back of strong earnings results in the US. The IT sector contributed almost a quarter of S&P 500 earnings in Q4 and recent GDP data confirms business are ramping up IT spend, with investment on ‘information processes and software' rising 6% in the quarter, the quickest rate of growth since Q1 2000.

Commodities outperformed the MSCI World Index for the 6 months. Higher forecast global growth was a key driver behind performance (the IMF revised up 2010 growth by 0.8% in January from their October estimate). The continuation of low global interest rates also saw the demand for precious metals maintained. 

Water underperformed for the 6 months but this was mostly for stock specific reasons, not sectoral.

Clean Energy was the only negative returning ETF (in USD) over the 6 months. After lagging the broader market early on, Clean Energy stocks added 10% in December on optimism the Copenhagen climate change summit would result in a binding agreement to reduce greenhouse emissions. Despite many serious faces and much rhetoric, it soon sunk in that the ‘Copenhagen Accord' amounts to little more than a New Year's resolution to drink and smoke less with no penalties for cheating on your promise (except possibly an earlier death).  As a result clean energy stocks fell 13% in January. None of this a game-changer for clean energy in the long-term, as concerns over global warming, conventional energy security and supply simply intensifying as time goes on.

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