Hi everyone. Welcome to our conversation on thematic investing. Mark, Nataliia, Folarin, thank you very much for joining us. So maybe just to start, let's level set. What exactly do we mean when we're talking about thematic investing? And to us, these are long-term, global trends that are really shaping the landscape that we see in the way that we live our lives, but most importantly, what we also see for financial markets. When we think about, you know, the Outlook and we've been talking with clients a lot this year about how we think the economy is strong, but we're aware of these fragilities that seem to exist when it comes to global tensions and some of the transitions that we're going through. A lot of that leads to greater capital expenditures. When we think about the world–strong growth in a fragile world–that's been the context of a lot of our conversations with clients this year and a lot of that, Mark, has led to conversations on infrastructure. We've commonly said that there's always a place for infrastructure in the portfolio, but given the global backdrop at the moment, it's particularly pertinent. So, why don't we dive right in with you?

It is this core asset because you're thinking of things which are essential services to everyday society. So it's roads, it's bridges, it's sanitation, it's water treatment, all of these things together. So pretty boring. Pretty defensive.

Purposely boring, but long-term contracts. So when you have those long-term contracts, these essential assets, it provides diversification. You know, this is something which is delivering returns or delivering growth. That's not necessarily tied to what's going on in the broader economy. The fact is, because it is such a core asset when you're thinking of those, these are elements which have very inelastic demand.

You always need these things. They’re at the base of of what our societies, our municipalities are run on. So the fact that you have that stable demand, it is an asset that provides long-term, stable income. It can provide protection from inflation. But then when you add these different elements like AI demand, renewable energy demand–that’s the growth. And so you're marrying these things together. And one of the most compelling things about infrastructure, regardless of where you are in that spectrum, is it tends to be something which has a lot of correlation benefits. It doesn’t–to make your returns for these assets to grow or be in demand–it doesn't necessarily rely on what's going on in the stock or the bond market. And so that's why it's such a good complement and a very resilient asset overall.

So what I'm hearing is that we've got the defensive, more steady-eddy type of the infrastructure space, but also because of new capital expenditure that's being driven by governments and also companies, we've now got these new parts of the market delivering GDP-plus type growth we think, which is where we think the additive, you know, advantage is for infrastructure.

Yeah, and we think both work in a portfolio. You have that stable, core income generating, low correlation to broad markets, but then you can combine that with the growth element, as well. And that's why it's a very interesting space. When you look since 2020, you've seen profits of the infrastructure companies grow by 16% per annum, but yet returns in the markets have only been 4%. So that also gives a unique opportunity for investors to take advantage of that dislocation that is existing right now.

And then you're also adding in what are these transformational growth trends that we talk a lot about. So the demand for AI, where you need data to go along with that, data centers, fiber networks, all of that combined. And then if you're delivering all of that new data and that demand for power, that power has to be done in a more clean way. And so renewable energy infrastructure is what ties together with that as well.

Yes. So data centers are definitely key. And I think what the market really under-appreciates is the amount of power needs that will be needed, especially for AI. So that brings a lot of opportunities in different sectors: industrials, utilities, but also technology sector. But it's not a very expensive sector, but also quite under-looked, but also with the cash rates going down, they provide a very interesting yield because of the dividend yield that they are playing.

And when we're thinking about a strong growth in a fragile world, there are also many security driven opportunities that we see in equity markets. So take us through how you're thinking about that.

Yeah, absolutely, Grace. If you look into the world right now, you’re seeing very high geopolitical tensions. You have cyber-attacks and we have climate risk. So therefore, the security becomes a very important theme right now. And that is interesting. It encompasses a lot of different things: national defense, reshoring and near shoring, as well as the resilience of supply chains, and the security from a cybersecurity and energy security perspective.

So when we look into corporates and governments, we're seeing how they are ramping up their spending. Very innovative spending, making a lot of investments, opportunities for investors. When you look into reshoring, for example, more than 320 billion of reshoring was announced since 2021. We're seeing how countries around the world increase defense spending, especially countries within NATO–but also energy.

Energy is going through a big transition because countries globally are trying to refigure it. What will be the right way going forward, in terms of securing energy sources, but also having clean energy?

That's a global theme, a multiyear theme. Cyber, also, is a risk that’s front of mind for many of our clients in their own businesses and in their personal lives, as much as in the investment portfolio.

A very growing theme. Cyber-attacks now cost $10 billion per annum, which is a very big number and something that we're seeing a lot of corporates increasing their spending on.

You see a lot of young, private companies which are finding the new solutions to this. And then the large companies that are most in need of these solutions are looking for things that they can bring into their business. So an opportunity across the value chain and you see how these different things come together. So the need for more data, the need to secure that data. The need for more data, well, that's a lot more power demand and you need to be able to produce that power, but also do it in a way that's less dependent on carbon and in a renewable infrastructure context. So three different themes but all ones that tie together.

Folarin, perhaps we can bring you in here to make it a bit more practical for us. Talk us through a lot of the conversations that you're having with clients and how you contextualize thematic investing, you know, to drive returns in line with clients’ goals.

So thematic investing is one where you have to think about where it fits in in your portfolio and fits into your goals. Whether you're looking at the public side or the private side, you know that's an important piece. If you're taking the public investing piece, it's very liquid and gives you, you know, easy returns to access. When you're thinking of the private investing space, you're thinking of long-term investing, but it can be fairly illiquid. So you have to take that into consideration.

My recommendation is always start from the very basic. What is your goal? What are you trying to achieve with your wealth? What's the intent for your wealth? When you then start to put those segments and buckets in place, then you can start to assign strategic asset allocations to those various segments in those various buckets. So that's the starting point.

When you then get to that position, you need to figure out what you want to invest in and in there you then get to thematic investing in that strategic asset allocation. So usually the conversation with the client starts with that–get a goal and then get an understanding of what we're trying to achieve.

If I were to summarize, I would just pull out a few points that each of you have made, which is obviously it starts with the intent of your wealth. When we're thinking about resilient portfolios, we do see a healthy environment for risk. And the core, you know, the sort of the 60/40, the stock-bond mix, is absolutely a great starting point.

But the capital expenditures that we're seeing coming through, which often are a function of government and corporate spending in response to some of these existential risks, is also in itself an investment opportunity where we can increase factor diversification. Often, if client books have got out of kilter and where we can in private markets increase yield and really capitalize on some of those newer opportunities, as well as the more traditional sources of infrastructure.