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The Human Factor: Investing for Social Good and Financial Gain

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Gillian Diesen, Client Portfolio Manager at Pictet Asset Management

This is a sponsored advertorial from Pictet Asset Management

What links the Disney+ and Hulu streaming platform businesses of The Walt Disney Company with US animal companion services provider IDEXX Laboratories and Chinese after-school-tutoring company XFN.CN? Answer: they are all consumer service stocks that qualify for inclusion in Pictet Asset Management’s recently launched Human investment strategy.

What links tobacco giant Philip Morris International with Facebook and US casino conglomerate Caesars Entertainment? Answer: they are consumer and consumer service stocks in which Human is unlikely to invest.

The difference between the two sets and their eligibility for inclusion in Human? Its portfolio managers believe that the former contributes to the development of human well-being, self-development and self-fulfillment and seek to drive social improvements while the latter does not. Social media providers like Facebook do not make the cut because of revenue models that push advertising at consumers and so impinge on individual choice and independent thinking.

Explains Gillian Diesen, client portfolio manager and product specialist with Pictet AM in Geneva: “Our goal was to craft a strategy that would benefit from the growth drivers of long-term secular growth megatrends while being, at its core, an opportunity for our clients to invest in socially responsible services. With that in mind, what we don’t include in the strategy is just as important as what we do include. With Human, social investing starts with the initial stock selection – a company’s purpose has to be to provide a service solution to our lifelong, everyday challenges – and continues throughout our relationship with the investment.”

A long pedigree of innovative thematic investing
Human, while clearly unique in its specific outlook, is the most recent in a 25-year history of thematic equity strategies launched by Pictet AM whose geneses are in the early identification of megatrends. These include Biotech (launched in 1995), Water (2000) Health (2004) and Robotics (2015). In total Pictet AM has $66 billion in AUM in thematic equities across 15 strategies managed by 41 investment professionals.

All these themes share a common approach in that they invest from a broad and diverse universe of liquid stocks extending beyond the MSCI ACWI. And all seek outperformance through selecting those companies which will benefit most from the effects of their underlying megatrends. Human, for example, is targeting companies whose revenues are predicted to exceed CAGRs of around 10%.

Formed in collaboration with academics, futurists and social scientists including the Copenhagen Institute for Future Studies, Human follows its megatrend predecessors in offering investors what Pictet AM calls the liquidity benefits of listed equity with the tangibility of venture capital. Though early in its lifespan, Human grew quickly to $100 million in AUM within two months of its launch.

Freeman Tsang, head of intermediaries in Asia ex-Japan at Pictet AM, elaborates, “The investment universe for Human comprises more than 200 stocks worth US$2.2 trillion. We also invest worldwide including in emerging markets and mainland China. Having such a breadth of choice increases opportunity, allows for greater diversification and makes space for market fluidity. We have narrowed this down to a portfolio of about 50 stocks through rigorous analysis of fundamentals, performance and long-term growth potential.”

An emphasis on self-fulfillment
Pictet AM conceived of Human as an unconstrained, bottom-up strategy in 2017 and launched it in November 2020. It takes psychologist and philosopher Abraham Maslow’s influential hierarchy of needs as one its inspirations and organizing philosophies. Maslow placed physiological needs at the bottom of this hierarchy and self-fulfillment at its apex.

The brain trust behind Human agrees and incorporates the concept into its strategy in tandem with other 21st Century megatrends including dematerialisation – a growing preference for spending on experiences – and demographic shifts that include living longer, living more alone and starting families later.

Together these inform Human’s three main sub-themes: Learn, Care and Enjoy.

Says Diesen, “The revenues, profits or enterprise value of the companies in our investment pool must be generated at least 50% by services related to one of these three categories. So, our primary constraint in investing is relevance to the theme as opposed to sector, geography or market capitalization.”

‘Learn’ encapsulates education, digital learning channels and career retraining services and is the largest of the three categories.

‘Care’ companies range from dating platforms and retirement homes to in-home healthcare for ageing parents and grandparents, as well as pet services.

Finally, ‘Enjoy’ relates to those companies and services that focus on the sense of enjoyment gained through entertainment, dining and cultural experiences.

The impact of Covid-19
While Pictet AM first conceived of its Human strategy three years ago, its relevance has only been accentuated by the social and economic effects and implications of the pandemic.

Says Diesen, “For many people, the pandemic has validated concerns about some governments’ inabilities to sustain and protect a quality of life that extends beyond basic needs. Lockdown procedures have opened consumers up to the adoption of greater digital solutions but they’ve also highlighted the importance of and challenges around caring for our more vulnerable – our children, our elders and the sick. The private sector can step into these opportunities and actually help. For us, that’s an investment opportunity.”

In it for the long haul
Pictet AM also sees a specific type of longevity in its investment horizon because, though the companies it invests in tend to be consumer discretionary in terms of categorisation, they actually are more like consumer staples, making them attractive to long-term investors.
Explains Diesen, “This strategy is all about ‘sticky’, repeat business models with long-term revenue visibility. That’s because this is all about consumer-orientated, often subscription-based services that, despite being discretionary purchases, rapidly become essentials in our lives. Think of your child’s creche, or even your Netflix and Spotify accounts, these are things that are very difficult to give up once you have them.”

This is a sponsored advertorial from Pictet Asset Management

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