Kathryn Young: Zurich Investments Global Thematic has a much different approach than most global equity strategies we cover. In particular, it has an exceptionally long-term horizon.
While many managers are trying to beat a market index year in and year out, this strategy is trying to be on the right side of major changes that will drive market winners and losers over the next five to 10 years or even longer.
The team uses a combination of top-down and bottom-up analysis to populate the portfolio. From a top-down perspective the team is trying to identify those themes that summarise these long-term changes that will drive wealth creation. The drivers can be a variety of factors from social, political, economic to technological change. From a bottom-up perspective the managers are trying to identify high-quality companies at reasonable valuations that are driving or benefiting from those changes.
So again it's the long term nature of the horizon that differentiates this strategy. The managers are willing to wait years for these themes to play out.
Most actively managed strategies are heavily reliant on the people researching the stocks and populating the portfolio. But that's especially true in this case. The process is highly qualitative in nature which puts more emphasis on the people applying the process. Fortunately, the team behind Zurich Investments Global Thematic is exceptional. The strategy was founded in 2003 by four people who each had more than 20 years' investment experience by that time. For the most part those founders remain with the strategy and actively involved on a day-to-day basis. So clearly they have the experience necessary to maintain the long term horizon that's characteristic of this strategy.
But they are also effectively guarding against stale thinking which can often come along with such long tenure and they are preparing for the future. Over the past five years or so they've hired two new people. These two people both have notable experience but more importantly they are very committed to the process. So we think that Zurich Investments Global Thematic has the right mix of experience, vitality and dedication to process that are necessary to generate long-term outperformance.
Every strategy, even the good ones, has risks that investors should carefully consider. Of course Zurich Investments Global Thematic is a global equity strategy, so its results will naturally reflect the ups and downs in global equity markets. Beyond that, though, investors should be prepared for this strategy to look and perform quite differently than peers and the market index.
The long-term nature of the outlook and the flexibility that the managers have to position the portfolio means that the strategy will be out of step with many peers at times. For example, the strategy far outperformed most peers in the 2004 to 2009 period, particularly it lost much less than most rivals during the global financial crisis.
However, it has lagged on a relative basis since 2012. Such periods are consistent with the strategy's approach and history suggests they are worth waiting out. Any investors in this strategy should be prepared to have as long a time horizon as the portfolio managers do.
Zurich Investments Global Thematic should be part of an investor's growth allocation. We at Morningstar think global equity should comprise a large chunk of the growth allocation. Within the global equities sleeve Zurich Investments Global Thematic can be a core component. It's well diversified and it typically holds high-quality, large-cap stocks. However, it would be a good idea to pair this strategy with something with a bit of a shorter time horizon. Diversification across time horizon is often overlooked as a component of diversification, but it would be especially important in this case.