Thematics performance 1H'2025

Our thematics return is almost double that of our competitors

Last week I led the class of University of Cambridge Master of Finance students at Judge Business School. I shared with the class my experience in developing and managing thematic investment strategies.

Thematic investing is about identifying the powerful, long-term trends shaping our future and translating them into tangible investment strategies. However, thematic equity funds could be volatile. This is why we created multi-asset thematics, which allow clients to invest in our geopolitical and macro views, while reducing the volatility associated with pure equity.

Sharing these insights with the bright minds at Cambridge is a tremendous opportunity to foster a deeper understanding of this forward-looking approach. It was an honour to engage with the next generation of finance leaders at such a prestigious institution, particularly as an alumnus myself.

1H 2025 performance of our thematic portfolios

Overall we had an outstanding result from our thematic portfolios which returned +16.6% in USD over 1H 2025 on average, almost double the return of our competitors of +8.6%. Our thematic average was also better than the +10% return from global equities (MSCI ACWI) and +2.3% from global aggregate bonds in USD.

Other than excellent instrument selection, our much larger than peers and benchmarks allocation to Europe and underweight USD, was an important part of the success story.

However, our outperformance is not representative of thematic equities overall.

The return from our competitors’ thematic equity funds lagged behind equities overall, thus continuing the underperformance stretch of thematic equities, which started in 2022.

Some of this underperformance could be attributed to the over-reliance on Mag7, which delivered just +2.2% return, worse than half the return of S&P500 of +5.5%, which itself underperformed global equities.

Security and Safety +30.6% in USD

Outstanding performance from this theme with over 3x return of our competitors.

To a large degree is attributable to our large allocation to European defence stocks than performed extremely well on the back of the NATO push to the 5% of the GDP spending target. Our timing of increasing Europe allocation at the expense of the US, was particularly good. Likewise, we correctly taken some money off the table for some Safety and Security sub-themes stocks that didn’t do as well subsequently.

Infrastructure +22.0% in USD

Another outstanding performance from our portfolio delivering more than twice the return of our competitors.

Transport & Structures sub-theme was the main positive contributor, as German government has mulled the €1Trln spending in defence and infrastructure. We have significant exposure to Germany. In addition, some of our names in ICT infrastructure in the US and Asia delivered very strong returns.

We highlighted this portfolio in a separate article: “How to invest in infrastructure” as it was the best performer after Q1 (+11.5%). The return almost doubled since then.

AI, Quantum and Data +21.1% in USD

This portfolio delivered over twice return of our competitors.

Originally AI and Big Data, we renamed it having added a Quantum technologies exposure in May, which we are planning to grow. We feel that Quantum is a major technology at an inflection point as we write in our dedicated article. Both Data and AI and Tools and Infrastructure sub-theme names have contributed strongly.

This portfolio comprises mostly US equities and as such underperformed in Q1. However, after the “Liberation Day” tariff announcement it sprung into action. Immediately after the tariff announcements, in the midst of the investor gloom and falling share prices, we made a contrarian call saying that we saw tariffs as positive for the US, which made us less negative on US assets and that we were making changes to our portfolios accordingly.

Then we increased our exposure to tech names which had a very positive effect on this portfolio, as it turned from being the worst performer in Q1 2025 (-15.6%) to third best in 1H. In our article on thematic equities in January we specifically highlighted that single theme thematic equities, especially those with a concentration on one particular market could be very volatile, which is a positive when markets are rallying.

Europe Renaissance +20.7% in USD

This is a multi-asset 100% Europe portfolio which is designed to benefit from reinvigoration of Europe which was a major macro call in our 2025 outlook.

It delivered almost twice the return of our competitors. In fact, this portfolio is unique and there are no direct competitors, so we compare our performance with an average of two European equity and two European bond funds. Given that there is no regional allocation difference, our outperformance is purely due to our superior instrument selection.

Our outperformance was broad-based. In equities we had excellent contribution from defence, financials, consumer and infrastructure stocks, including small cap. In fixed income we had significantly better return than competitors due to our selection of long-duration Eurozone Government bonds and UK Corporates.

Inflation Buster +20.4% in USD

This multi-asset portfolio is designed not only to defend against inflation but also against weak USD as we highlighted in a separate article “Fighting the weak dollar”.

This portfolio delivered over 3x return of our competitors. Gold which was up +26.2% over the period was the largest contributor but some other commodities and stocks returned more than 30, 40 or even 70%.

Consumer Brands +14.2% in USD

The return from this portfolio is over 3x better than that of the competitors.

Almost half of this portfolio is in Europe which benefited the performance. Although Good & Homes subsegment was mixed, as many of the luxury brands were weak, some Financial Products and TMT companies compensated with very strong performance.

High Income +12.3% in USD

This is a multi-asset portfolio designed to produce high recurring income from bond coupons and dividends in addition to capital appreciation.

Net projected income is 4.9%, the same for bonds and equities. In addition, our capital appreciation was almost 5x return of the competitors. We had some very strong returns from high dividend financial, infrastructure, emerging markets equities, and even some of our European bonds were up in double digits in USD.

BRICs Rising +11.3% in USD

This is a multi-asset portfolio designed to benefit from faster growth of BRICs.

It delivered return just ahead of our competitors. Similarly to our competitors, we had strong double digit return from equities, especially Brazil, which is a major allocation for us, and single-digit returns from local currency bonds.

Financial Technology +8.9% in USD

This portfolio return was below competitors, which were skewed by two extremely well performing funds.

Processors and Hubs sub-themes did better than Digital. But we did not have much European exposure in this portfolio to benefit from allocation.

Health Technology +4.6% in USD

This portfolio performed just behind peers.

The Biotech sub-segment was negative, despite some very strong stock picks in the Health sub-segment.

Disclosure

My articles represent my personal opinions and are provided for information purposes only. Their content is not intended to be an investment advice, or a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. I use information sources which I believe to be reliable, but their accuracy cannot be guaranteed. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors and, if in doubt, an investor should seek advice from a qualified investment advisor.