By: Chantal Marx
How can FNB help you invest thematically?
Thematic investing has gained in prominence over the last decade, with investors buying into big idea trades like big tech, electrification, clean energy, cybersecurity, social responsibility, genomics, and most recently, AI.
In short, thematic investing seeks to capture opportunities created by long-term structural trends. So, it extends far beyond economics and market cycles into areas such as changing demographics, evolving consumer behaviours, and innovative technologies - basically things that are changing the way we live.
Successful implementation requires correctly identifying structural shifts, finding companies or products with high exposure to those shifts, and timing the theme to enter early enough that earnings and forecasts have not fully priced in the theme's potential.
Unfortunately, for traders and investors on the Johannesburg Stock Exchange (JSE), exposure to the companies that tap into some of the biggest themes globally was quite difficult to achieve in the past. With this in mind, FNB listed several single-stock exchange-traded notes (ETNs) on the JSE in 2020 that opened a new avenue of gaining offshore exposure for local retail investors. At the end of April 2024, FNB listed an additional eight ETNs, and earlier this year, another 16. These ETNs compliment other FNB exchange-traded funds (ETFs) and ETNs that provide investors with a way to track certain indices - thereby providing broad based exposure to a number of local and global sectors and markets.
What are some of the biggest themes we are buying into currently?
Valuation must always be a consideration
Some of the companies exposed to big themes can get bid up to exceptionally high levels - this does not mean the structural shift is not under way, but it could mean that some of the players exposed to these themes are pricing in growth beyond what is reasonable. The dot-com bubble is a good example here. Some internet companies were bid up way beyond their potential in the late 90's and several did not survive. That does not mean the excitement was not warranted and that the internet did not fundamentally change lives and lifestyles globally. It means that good investments are made at reasonable prices and not by blindly following the herd.
It is therefore important to keep in mind that some of the company's underlying the FNB ETNs may be expensive currently, but it is equally vital for those with a long-term view to invest when prices have come under pressure and take advantage of opportunities when they arise.
A reminder on how the ETNs work
An ETN is a type of security issued by a financial institution. It tracks the value of a basket of shares or individual shares. The ETN's price fluctuates based on the underlying instrument's performance. For example, if an LVMH ETN is purchased, the price of the ETN will increase based on the performance of the LVMH share itself.
Investors do not physically own any shares; however, they obtain exposure to the company's performance based on the fluctuating ETN price. The better the company performs, the higher the price of the ETN and the more profit investors will make.
Each company can be accessed through a "Compo" option - which tracks the rand-based share price, and "Quanto" option - which tracks the US dollar-based share price. The Compo share price will reflect the movements of the rand relative to the USD and will outperform the Quanto option when the rand is weakening and underperform during periods of rand strength.
