Goldman Sachs and Sygnia lead the pack in thematic funds

• Millennials, disrupters and people interested in innovative trends are the target market

Thematic unit trusts are often a marketing driven alternative to more prosaic fare such as US equity funds. They often have a short shelf life — for example the Wired Index fund introduced by the then Investec Asset Management at the turn of the century aimed to include the funds that captured the zeitgeist of the dot.com era, including a Texan commodity trader called Enron.

Sadly for Investec this was engulfed in the biggest fraud of our lifetime. Locally, intellectual capital funds became popular. But the JSE is too small for theme funds, so shares such as Absa, which have decent but unremarkable IT systems, were sometimes included.

At this week’s virtual Investment Forum, two thematic funds stood out. The Goldman Sachs Global Millennials Equity Fund and the Sygnia Fourth Industrial Revolution (4IR) Fund.

Goldman’s fund was launched in 2016, but now looks like the perfect time to gather assets into a millennial fund. Millennials are aged 20-40, so most are employed or in higher education. And it is before millennials, like all the generations before them, become fully paidup members of the bourgeoisie: the gin and tonic drinkers at the golf club.

Kathryn Koch, Goldman’s cohead of fundamental equity, says that as millennials get more wealth and influence, disrupters will dominate the market even more. And 21% of the S&P 500 is made up of the big disrupters, namely Facebook, Apple, Amazon, Google and even Microsoft, which did its big disrupting more than 30 years ago.

Koch says no less than 31% of the S&P 500 is vulnerable to disruption, while the remaining 48% certainly won’t be immune. Koch says that since 2015 the disrupters’ share prices have outperformed the disrupted by 279%. Over the past five years the fund’s annual return of 25% has been well above the 19.5% from the MSCI Growth Index.

But the fund is not an index fund and valuations play a big part in its stock selection. Neither Apple nor Microsoft appear in its top 10 holdings. And the team has even found room for a real estate investment trust, American Tower Corp. Admittedly this is not a typical shopping mall and office space owner, but it owns towers to facilitate Wi-Fi and broadcast signals.

The fund has four themes. The millennial consumer theme focuses on the connected world, health and wellness, experiences — not necessary travel — and entertainment and gaming. The fund’s main entertainment play is not Netflix but Walt Disney, which recently launched its own platform in the US, and it also owns concert promoter Live Nation Entertainment.

Inevitably environmental sustainability matters to millennials, at least for now. This includes clean energy, resource efficiency, sustainable consumption and the circular economy, what we call renewables.

Another is tech advancement such as digital payments, cloudbased

software, cybersecurity and the internet of things. Its biggest holding in this space is that age-old brand Mastercard.

And then there is the future of health care, which is being driven by the increased longevity of Baby Boomers and Generation X rather than the needs of millennials. But nonetheless, millennials understand concepts such as genomics, precision medicine, tech-enabled procedures and digital health.

Similar themes are available in the Sygnia 4IR fund. Iain Anderson, head of investments, explained that the first industrial revolution was steam trains and steam-driven factories in the UK; the second electricity and the Ford production lines in the US; the third what was called automation; and the fourth is a leap forward just about everywhere.

The fund tracks a series of the S&P Kensho indices, and Sygnia has exclusive rights to follow the Kensho range in SA. Kensho offers, for example, a Space Index, a Drone Index, a Robotics Index, a Clean Energy Index and even an Alternative Finance Index.

Kensho added Zoom Communications to its line-up in November 2019 just before it became indispensable as Covid19 struck. Sygnia 4IR Fund is second out of 44 unit trusts in the Global Equity since inception in October 2016, with a 28.1% annual return.

Over one or two years its main competition has been the sister Sygnia FAANG fund, which invests only in the giant disrupters. None of those shares will ever have more than a nominal position in 4IR. The largest position in 4IR is Vuzix at 5.4% of

the fund, which makes smart glasses used not only by surgeons but by Rio Tinto miners. Tesla accounts for just 1.3% of the fund, and Tesla’s founder might be upset to see he has the same weighting as General Motors, which is commercialising selfdriving technology. Avis Budget car hire is also considered 4IR.

“Theme fund” can often be used as a marketing term for a region or sector. Maybe when Mark Mobius started his emerging markets fund 30 years or more ago it looked like a “theme” but it is now a region, even if it’s large and highly diverse. Healthcare looks like a sector fund, though Sygnia bangs the drum for its innovation. Always think through how these funds fit into your financial plan.

AT THIS WEEK’S VIRTUAL INVESTMENT FUND TWO THEMATIC FUNDS STOOD OUT: GOLDMAN SACHS’ GLOBAL MILLENIALS AND SYGNIA 4IR FUND