Thematic investing has outperformed this year as the COVID-19 pandemic has put a focus on many of the disruptive megatrends tracked by the portfolios.
The 26 Qontigo STOXX Thematic Indices have risen 9.2% on average in 20201, compared with a 0.7% retreat for the benchmark STOXX® Global 1800 Index. Thematic indices track trends with a transformational force of change on societies and the economy. These include breakthrough healthcare and digitalization, which have been thrusted to the forefront this year and are pacing market gains.
Thematic investing attempts to capitalize on broad and often hard-to-predict global megatrends impacting our society. The STOXX Thematic Indices seek exposure to the likely beneficiaries of the economic upside of those trends through a distinctive and meticulous selection process.
Exhibit 1 shows the 2020 total returns of the STOXX Thematic Indices.
Exhibit 1 – 2020 returns through July
|Thematic index||% return|
|STOXX® Global Smart Cities||35.4|
|STOXX® Global Video Gaming & eSports||33.4|
|STOXX® Global Artificial Intelligence||23|
|STOXX® Global Millennials||20.9|
|STOXX® Global Breakthrough Healthcare||20.7|
|STOXX® Global Digitalisation||18.2|
|STOXX® Global Sharing Economy Drivers||17.1|
|STOXX® Global Pet Care||16|
|STOXX® Global Sharing Economy||15.7|
|STOXX® Global Fintech||15.3|
|STOXX® Global Health & Weight Loss||12.6|
|iSTOXX® Developed Markets B.R.AI.N.||10.1|
|STOXX® Global Industry 4.0||9|
|STOXX® Global Digital Security||8.2|
|STOXX® Global Automation & Robotics||7.1|
|STOXX® Global Smart Factory||4.1|
|STOXX® AI Global Artificial Intelligence||2.9|
|STOXX® AI Global Artificial Intelligence ADTV5||2.8|
|STOXX® Global Silver Economy||2.2|
|STOXX® Global Next Generation Telecom||1.5|
|STOXX® Global Housing Construction||-0.5|
|STOXX® Global Smart City Infrastructure||-3.7|
|STOXX® Global Broad Infrastructure||-6.7|
|iSTOXX® Yewno Developed Markets Blockchain||-8.3|
|STOXX® Global Ageing Population||-8.6|
|STOXX® Global Electric Vehicles and Driving Technology||-9.8|
Source: Qontigo, gross returns in dollars.
All but five have beaten the benchmark this year. Leading gains is the STOXX® Global Smart Cities Index, which tracks companies that stand to benefit from the evolution of modern cities into efficient and intelligent spaces.2
Massive audience enlargement
More to our topic, three of the six best-performing thematic indices touch upon trends that lie at the center of this year’s economic and social disruption.
Among them, the STOXX® Global Video Gaming & eSports Index has jumped 33%. Global lockdowns have reportedly resulted in ‘a massive enlargement of the audience’ for video-game publishers,3 increased consumer engagement and higher revenues.
The Global Video Gaming & eSports Index not only includes those companies that produce games, but also the providers of platforms and connectivity software, from Apple Inc. to Microsoft Corp.
The STOXX® Global Breakthrough Healthcare Index, up 21% in 2020, is this year inexorably linked to treatments for COVID-19. Shares in Seegene, the Korean diagnostics company whose COVID-19 test kits are sold around the world, have risen eight-fold since Jan. 1. Inovio Pharmaceuticals Inc., which is working towards developing a vaccine against the novel coronavirus, is up nearly 500%.
To be clear, biotechnology remains a very attractive sector for institutional and corporate investors beyond COVID-19. A number of acquisitions in the industry this year underscore the interest in new drugs and treatments on other diseases, and of their potential revenue.
Online shopping and digital transactions
The STOXX® Global Digitalisation Index, for its part, is up 18% this year. Among strongly performing constituents are stocks related to e-commerce as brick-and-mortar shops were closed down. Shares in United Parcel Service Inc., the world’s largest package delivery company, and in rival FedEx Corp., have advanced as they raise prices to meet an ‘avalanche’ of demand for home deliveries.4
PayPal Holdings Inc., the digital payments platform, on Jul. 29 raised its full-year revenue guidance after reporting its strongest quarterly results in history. Other stocks in the index include Wayfair Inc., Netflix Inc. and DocuSign Inc.
On the flip side, the STOXX® Global Ageing Population Index has lost 8.6% this year, the second-worst performance in the index family, as many component companies have suffered heavy drops in revenue. This includes businesses in the travel & leisure, financial services, insurance and banking sectors.
Revenue-based or AI-based selection
The Qontigo STOXX Thematic Indices are grouped into two main classifications according to their stock selection method: 23 of them have a revenue-source thematic approach, while the remaining three use an innovative artificial-intelligence system that finds those companies most exposed to each theme. For a detailed explanation of both, please click here.
The characteristics of thematic portfolios
Thematic portfolios rely on a predictive assessment of future growth as opposed to past performance; they place bets on longer horizons than does the traditional equity allocation; and provide diversification from the sector allocation of market-capitalization-weighted indices.
This year’s extraordinary events have likely made some of those thematic megatrends more visible and investors seem to have positioned themselves to reap the economic benefits of transformation.
STOXX Thematic Indices
STOXX® Global Ageing Population Index
STOXX® Global Breakthrough Healthcare Index
STOXX® Global Automation & Robotics Index
STOXX® Global Digitalisation Index
STOXX® Global Fintech Index
STOXX® Global Artificial Intelligence Index
STOXX® AI Global Artificial Intelligence Index
iSTOXX® Developed Markets B.R.AI.N. Index
iSTOXX® Yewno Developed Markets Blockchain Index
STOXX® Global Digital Security Index
STOXX® Global Sharing Economy Drivers Index
STOXX® Global Housing Construction Index
STOXX® Global Industry 4.0 Index
STOXX® Global Millennials Index
STOXX® Global Sharing Economy Index
STOXX® Global Silver Economy Index
STOXX® Global Smart Cities Index
STOXX® Global Smart Factory Index
STOXX® AI Global Artificial Intelligence ADTV5 Index
STOXX® Global Next Generation Telecom Index
STOXX® Global Smart City Infrastructure Index
STOXX® Global Broad Infrastructure Index
STOXX® Global Video Gaming & eSports Index
STOXX® Global Pet Care Index
STOXX® Global Health & Weight Loss Index
STOXX® Global Electric Vehicles and Driving Technology Index
1 Gross returns in dollars through July.
2 A smart city uses innovative means to improve quality of life, urban operation and services, and competitiveness; at the same time, it strives to meet its present and future citizens’ needs on an economic, social, environmental and cultural level. The companies in the STOXX Global Smart Cities Index address a diverse set of requirements such as smart and enhanced buildings/homes, efficient mobility, optimum energy utilization and better administrative services.
3 World Economic Forum, ‘How COVID-19 is taking gaming and esports to the next level,’ May 15, 2020.
4 Bloomberg, ‘UPS, FedEx Flex Price Power on Delivery Surge, Driving Up Shares,’ Aug. 7, 2020.