Thematic Funds: The Risks and Returns

In this article we look at the performance of 5 investment funds which highlight some of the differences amongst the funds and the themes.

The Pictet Environmental Megatrends fund invests one third in clean energy, one third in Water, one sixth in Agriculture and one sixth in Forestry. It is the Forestry and Agriculture exposure which provided the fund with its outperformance in August compared to its peer group.

The asset diversity of the Cheviot Climate Assets fund also assisted in its performance. At the beginning of August it was holding 2.6% in physical gold, and 17.7% in fixed interest giving it significant protection from the fall in the equity market. It also has a 13.3% holding in health care companies. The FTSE World Health Care index rallied after an initial fall, ending down only 2.97% compared to a 6.79% fall from the FTSE World index.

IM WHEB Sustainability fund benefitted too from its exposure to healthcare. One of their three investment themes is Demographics, which includes healthcare companies such as Frenesius and Rhoen Klinikum. 

Exposure to companies in Forestry, Agriculture, Gold, Fixed Interest and Health help explain for August why the funds above outperformed Schroder Global Climate Change fund and Impax Environmental Markets.

However as a warning this sort of diversification does not always work and a multitude of decisions explain longer term performance. The furthest we can compare all of the above funds is 10th September 2010, the launch date for the Pictet Environmental Megatrends. You will note that from this date the Schroder Climate Change Fund makes a significant improvement in its relative performance.

Readers however should be aware that one month and one year performance is only really useful to understand how a fund is currently investing and not the basis for a long term investment decision.