Accessing the future: the what, why and how of thematic investing

Simon Henry, CFA, Portfolio Manager
Dáire Dunne, CFA, Portfolio Manager
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Green City Shanghai


This is a marketing communication. Please refer to the prospectus of the Fund and to the KIID and/or offering documents before making any final investment decisions.

What is thematic investing?

Thematic investing is an approach that focuses on multiyear structural forces, rather than individual companies or sectors, that may be less correlated to traditional economic cycles. These forces are changing the world around us and may be supported by government policy, demographic shifts and/or technological advancements. By targeting structural trends across regions, industries and investment styles, such a theme-focused approach may offer investors broader access to tomorrow’s potential winners today. 

How do you find and develop investment themes?

We seek to identify themes that align with sustainable economic development and benefit from structural tailwinds related, for example, to policy, demographics, or innovation, and assess what opportunity each theme is seeking to capture. Uncovering the themes we consider to have the most compelling potential involves close collaboration between our investment team and Wellington’s global industry analysts, macro strategists and sustainability experts. We also draw on a range of external sources, including supranational, government and industry reports, as well as academic research. 

How do you rank themes?

We aim to invest in between five and 10 themes in which we have long-term high conviction, related to inclusion, sustainability and innovation. While our approach is long-term oriented, we view risk management as a key component of our investment process in seeking to smooth returns and provide stability in the face of shifts in sentiment and fundamentals. We assess valuations, price and earnings momentum and profitability trends to inform our decision making on which themes are the most attractive over shorter time horizons. The thematic scores and rankings we construct incorporate both quantitative and qualitative views into our decision making. 

Can thematic investing incorporate sustainability and ESG goals?

Yes. Sustainable economic development is an overarching consideration for all our investments. We believe durable development involves increasing economies’ productive capacity while using available resources responsibly and promoting economic inclusivity and better quality of life for citizens. We view ESG analysis and integration as potentially both return-enhancing and risk-mitigating, and we incorporate ESG criteria into our analysis of each investment, both at the time of purchase and on an ongoing basis. 

How does the portfolio provide exposure to the themes?

China Longyuan Power (Theme: Environmental consciousness)
Our Environmental consciousness theme looks to invest in companies that promote renewable energy technologies and benefit from government incentives for sustainable infrastructure investments. Within the theme, China Longyuan Power, the largest and most established wind farm operator globally, is one of our highest-conviction holdings. China is one of the world’s biggest carbon emitters and we think renewables are set to enjoy fast capacity expansion and earnings growth in the region, supported by China’s aim to be net zero by 2060.

Bank Rakyat (Theme: Financial market deepening)
We believe that greater financial inclusion is essential for reducing inequality and improving economic development prospects across the globe. Bank Rakyat has been at the forefront of increasing access to financial services across Indonesia's vast archipelago, particularly around microlending. Through digital adoption and a branchless banking initiative, the bank has brought financial services to areas of the country previously too difficult to reach for traditional banking services. 

Why is thematic investing an attractive opportunity in the current environment?

We believe that emerging markets (EM) benchmark indices have become more concentrated, which can lead to higher levels of cyclicality and less potential for diversification. We think an active and unconstrained thematic investing approach offers diversification benefits alongside core or passive EM exposure. By providing active, long-term exposure to powerful and persistent trends that are changing the world, a thematic investing approach has the potential to reduce the impact of economic cyclicality and country and market risk. 

Why invest in the Wellington EM Development Fund?

Going beyond traditional investing, we seek to harness future development potential rather than focusing on past winners, by investing in companies that are at the forefront of innovation or are driving disruption. The investment process integrates the distinct skill sets of thematic research and stock selection, with specialists focusing on each area: 

  1. With backgrounds in top-down, multi-asset investing, the portfolio managers concentrate on understanding long-term structural themes. Their detailed research lays out a consistent roadmap for developing themes and identifying the variables to be tracked for each theme. 
  2. Within each theme, the portfolio managers assign industry specialists to generate stock-level insights. Each specialist has deep global knowledge of their sector, developed over their entire careers.

The Fund’s portfolio managers work in close partnership with our industry specialists to identify how themes are evolving and to assess the industry specialists’ views on individual stocks.

ESG considerations

  • The portfolio’s focus on sustainable development aligns with the United Nations Sustainable Development Goals (UN SDGs), and the investment process draws on Wellington’s active ESG research and company engagement.1
  • At least 75% of the portfolio is invested in companies that we consider to be sustainable investments.
  • We exclude companies in industries that we view as fundamentally misaligned with our definition of economic development (thermal coal, weapons and tobacco).

The Wellington EM Development Fund is managed by Simon Henry and Dáire Dunne.

- SFDR Article 82

- MSCI ESG rating “A”

- Morningstar Five Stars3

1 We do not manage the portfolio to any targeted level of alignment with the UN SDGs. Wellington determines the goals and targets that, in our view, each company is aligned with. Other investment firms may take different views. Sources: Wellington Management, | Wellington Management supports the UN SDGs.
2Please refer to the sustainability related disclosures of the fund 
3©2022 Morningstar, Inc. All rights reserved. The information contained herein: (a) is proprietary to Morningstar and/or its content providers; (b) may not be copied or distributed; and (c) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Rating as of 31 October 2022. Past performance does not predict future returns. Rating is based on USD S Acc Unhg. Ratings are not a recommendation.

The engagement case studies presented are for illustrative purposes only. They are based on meetings held and focus on topics we think are important to give insight into our process. There can be no assurance we will continue to hold these companies and that they will be profitable in the future. The individual issuers listed should not be considered a recommendation to buy or sell. Please refer to the annual and semi-annual report for the full holdings.

Investors should consider the risks that may impact their capital, before investing. The value of your investment may fluctuate from the time of the original investment. A decision to invest should consider all characteristics and objectives as described in the prospectus and KIID.

Capital: Investment markets are subject to economic, regulatory, market sentiment and political risks. All investors should consider the risks that may impact their capital, before investing. The value of your investment may become worth more or less than at the time of the original investment. The Fund may experience a high volatility from time to time. | Currency: The value of the Fund may be affected by changes in currency exchange rates. Unhedged currency risk may subject the Fund to significant volatility. | Emerging Markets: Emerging markets may be subject to custodial and political risks, and volatility. Investment in foreign currency entails exchange risks. | Equities: Investments may be volatile and may fluctuate according to market conditions, the performance of individual companies and that of the broader equity market. | Hedging: Any hedging strategy using derivatives may not achieve a perfect hedge. | Liquidity: The Fund may invest in securities that are less liquid and may be more difficult to buy or sell in a timely fashion and/or at fair value. | Manager: Investment performance depends on the investment management team and their investment strategies. If the strategies do not perform as expected, if opportunities to implement them do not arise or if the team does not implement its investment strategies successfully, then a fund may underperform or experience losses. | Small- and mid-cap companies: Small- and mid-cap companies’ valuations may be more volatile than those of large-cap companies. They may also be less liquid. | Sustainability: An environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of an investment. 

Please refer to the prospectus and KIID for additional information on the risks associated with investing.

Our approach to sustainable investing


Related insights

Showing of Insights Posts
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

China internet: Identifying opportunities amid economic reopening 

Continue reading
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

India equity: An unsung long-term performance story

Continue reading
Quick Take
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Read next