The model is what is known as “thematic investing” – identifying broad global issues such as population ageing, water shortages, security, the growth of an emerging market middle class – and building investment ideas on the back of these concepts. For example, the water shortage theme means construction firms putting in new pipelines, dams and water treatment plants are a bullish bet. The approach has been around for several years, but Pictet told WealthBriefing recently that the approach has yet to really catch on in the UK.

“It is a really compelling story and it is really tangible. It is also a lot easier coming to a client with one of those funds than just another equities product,” Paul Gaston, head of sales, UK, at Pictet Asset Management, told this publication in an interview at the Swiss firm’s London offices.

“The appetite for the product range that we have has changed for UK investors who are going to increasing start looking at thematic investing,” Mr Gaston said.

Today, there are no longer legal or tax reasons why a UK-based investors cannot hold a SICAV fund structure based in Luxembourg, where many Pictet funds are based, he said. “We have issued sterling share classes and have obtained UK distribution status on many of our funds,” he continued.

“Suddenly, you have a market that is quite viable and it can only go one way, which is upwards,” Mr Gaston said

Mr Gaston, who has been at Pictet for more than two years, is an unashamed evangelist for Pictet’s stance as an environmentally-aware private bank, an approach he says fits snugly with the thematically driven funds range it has launched in recent years. These funds, he says, typically play to a number of themes that fit with worries about issues such as global warming. However, some themes, such as security or luxury goods, are quite different.

The funds can boast a strong track record that he says provides a compelling case, he said, notwithstanding the usual health warnings that investors must heed about how past performance does not imply such gains will continue.

For example, the sterling share class of Pictet’s PF Global Megatrend Selection fund, launched in November last year, has delivered a cumulative performance of 27.4 per cent, outperforming the Morgan Stanley Capital International World index of developed countries’ shares, at 21.7 per cent. The sterling share class of the firm’s PF Security fund has chalked up one-year annualised returns of 36.2 per cent, comfortably ahead of the MSCI World’s 16.6 per cent track record.

Avoiding distortions

Thematic investing can surmount one common problem for investors who have previously invested along geographic lines. For example, in the FTSE 100 index of blue-chip shares, the oil giants, Royal-Dutch Shell and BP together account for about 18 per cent of the total index, giving the fortunes of the oil and energy sector a disproportionate impact on the indexes movement. Construction and financials also account for a strong share of the FTSE 100, which means investors might have to look elsewhere for broader diversification. This issue of market dominance by a handful of a few firms can reach extremes: in the case of Nokia, the Finnish mobile telephone company, accounts for about a third of the Helsinki Stock Exchange. At some stages, this share of total market cap has been even larger.

As a result, thematic investing is attractive because it gets around this sort of distortion. Thematic funds also stand out from the broad mass of portfolios being touted around the market. A player such as Pictet, not a household name in the mass market , can use thematic investing to give it a marketing edge.

Pictet is not alone as a provider of thematic funds, however. BNP Paribas, Deutsche Bank, Sarasin and Credit Agricole, for example, provide such portfolios to a variety of different investors.

Where themes emerge

The firm draws it themes from research provided by such institutions as the Copenhagen Institute. This body identifies themes that it expects to generate significant growth opportunities. There are a total of 15 global themes. And Pictet has 9 Thematic funds that are based on many of these ideas.

Pictet also offers traditional Socially Responsible Investing Funds. SRI does overlap with some of the thematic ideas identified, but not all of them do .

The funds, which are long-only, do not make use of leverage and avoid direct investment in commodities and other unlisted assets. Instead, they focus on holding listed equities of large, middle-size and small firms, said Mr Gaston.

“Pictet is a risk-averse house,” he said. That is not an understatement – Pictet, a private bank dating back to 1805, operates a highly conservative investment approach, stemming in part from its unlimited liability partnership model.  

However, while the thematic investment argument is compelling, Mr Mr Gaston says there remains some cultural inertia in the UK when it comes to embracing this investment model. “The downside for some organisations is that most firms operate funds on a geographic basis so this approach can mess their models up.” However, he is finding that a once-cold attitude is thawing.

Pictet will work with a different range of distribution channels in countries, depending on the local structure, such as independent financial advisors in Italy and the UK.