75% of thematic strategies deliver alpha over Nifty 50 in the last six months, showcasing the potential of a focused investing approach

Thematic investing, with its focus on capturing growth potential from emerging trends and structural shifts, has gained significant traction in recent years. Portfolio Management Services (PMS), offering customised investment solutions, have emerged as a popular vehicle for investors to access these thematic strategies. In the last six months of CY2024 (up to July 31), amidst a bullish market environment, certain thematic PMS strategies have showcased remarkable performance, significantly outperforming benchmark indices like the Nifty 50 TRI (15.72%) and the BSE 500 TRI (19.57%).

Let's delve into the standout performers and analyse the factors behind their success.

ESG Takes the Lead

Green Portfolio's The Impact ESG Fund has emerged as the clear winner in the thematic PMS space, delivering an impressive 6-month return of 28.72%. This performance underscores the growing investor interest in environmental, social, and governance (ESG) factors, with companies adhering to sustainable practices increasingly favoured by the market. 

Importantly, the Impact ESG Fund employs a 'best-in-class' approach, diversifying across sectors and selecting top companies within each. It emphasizes the equal importance of ESG factors.

Riding the Healthcare Wave

The healthcare sector has been a consistent performer, driven by factors such as an ageing population, rising healthcare expenditure, and technological advancements. Valcreate Investment Managers' Lifesciences and Specialty Opportunities strategy capitalised on this trend, generating a commendable 25.17% return in the first half of the year. 

Valcreate's stock selection is driven by the GQV Investment framework, which defines the quantitative & qualitative aspects (focus on business growth, quality & valuations) we consider as part of identifying stocks for investments. 

Digital Disruption: A Consistent Theme

The ongoing digital transformation across industries continues to present lucrative investment opportunities. Again, Valcreate Investment Managers' IME Digital Disruption strategy, focussing on companies at the forefront of technological innovation, delivered an impressive 23.28% return in the last 6 months. 

The IME Digital Disruption Strategy invests solely in listed digital platform businesses, using a focused approach and private-equity-like methods for stock selection and portfolio construction.

The MNC Edge

Anand Rathi Advisors' MNC PMS and Green Portfolio's MNC Advantage strategies, focussing on multinational corporations with strong brand equity and global reach, also delivered stellar returns of 24.14% and 22.95% respectively. Anand Rathi MNC PMS is a large-cap strategy investing in Indian-listed multinational companies with significant foreign ownership/control. It targets companies with strong business models, healthy balance sheets, and good governance, suitable for conservative to moderate-risk investors. Green Portfolio MNC Advantage also focuses on multinational corporations with strong parentage, brands, and governance. It invests in companies with successful international operations, R&D, and global market presence, aiming for consistent capital appreciation through staggered investments.

Several portfolios demonstrated robust returns. Invesco Asset Management appears to have outperformed many peers, with its large-cap-based DAWN strategy and multi-cap-based RISE strategy leading the charge, both boasting returns of about 20%. 

Narnolia Financial Services' 5TX5T strategy (invests in 4-6 themes), BugleRock Capital's Thematic Opportunities Portfolio (builds portfolio on the foundation of 2 themes), and PGIM India Equity Portfolio have also showcased strong performance, with around 19.5% returns in the last 6 months. 

Here is a chart capturing the 6-month performance of thematic PMSes.

Benchmarking Success

The average return for the 16 thematic PMS strategies captured by PMSBazaar data stands at an impressive 19.41%. This notably surpasses the Nifty 50 TRI and BSE 500 TRI return for the same period. In fact, 75% i.e. 12 out of the 16 strategies outperformed the Nifty 50 TRI, highlighting the alpha-generating potential of thematic investing.

Here is a chart on category average performance versus benchmarks.

Green Portfolio's The Impact ESG Fund generated the highest alpha, outperforming the Nifty 50 TRI by 13%. points This showcases the potential for ESG-focused strategies to deliver superior risk-adjusted returns.

While the impressive returns of these thematic PMS strategies are certainly noteworthy, it is essential to look beyond the numbers. Thematic investing, by its very nature, involves focussing on specific sectors or trends, which can lead to higher volatility compared to broader market indices. The strong performance of thematic PMS in the last 6 months of CY2024 underscores the potential of this investment approach. However, investors must conduct thorough due diligence, carefully assess their risk appetite, and choose strategies that align with their long-term financial goals. 

As with any investment, diversification remains key to mitigating risks and achieving sustainable returns in the dynamic world of thematic investing.

Please note that these are for informational purposes only and are not to be taken as recommendations. Investors should consult a financial advisor before making any investment decisions.