European investors' appetite for thematic investing to grow over next three years

European investors plan to increase their exposure to thematic investments over the next three years, according to a survey by Vontobel.

According to the figures, 84% of respondents have started to adopt thematic approaches in their portfolios, while 49% plan to increase their allocations over the next three years. 

Currently, more than half of respondents across Europe allocate at least 20% of their equity portfolios according to a thematic approach. Furthermore, of those who do already allocate at least a fifth of their portfolios to thematic investing, 20% hold 40% or more of assets thematically.

In terms of the most popular thematic themes over the next one to three years, 65% of respondents said 'Urbanisation' and 'Smart Cities' would be a key thematic investment topic, followed by 'Resource Scarcity' (57%) and 'Climate Change/ESG' (57%). 

Sheridan Bowers, Head of UK & Ireland at Vontobel Asset Management, said: "While covid-19 has created a huge level of disruption, many investors expect the longer term impact of the pandemic to further accelerate the underlying trends behind the themes in which they have invested.

"With this in mind, we would expect to see approaches to thematic investment further evolve and mature over time. For most investors, the debate is no longer about whether to invest thematically, but about how to do so most effectively."

Still, the desire for a further shift towards thematics is not shared by all. This is most evident in the UK, where 34% plan to trim holdings. Vontobel's research also shows that UK institutional investors and intermediaries currently have one of Europe's highest exposures to thematics, with 64% allocating at least 20% to thematic strategies, behind only Switzerland (76%), Benelux (75%) and Italy (65%).

The survey said this shift in sentiment may indicate that early adopters of thematic styles, particularly in the UK, may feel that some of the underlying thematic trends could have run their course. Indeed, 41% of those planning to move away from thematic styles of investment say that future growth is already priced in. 

The study also reveals that thematic investing is not an equity-only strategy, as a significant number of respondents already apply a thematic approach across a broad range of asset classes. Respondents with larger amounts of AUM are particularly likely to have thematic exposures in asset classes like infrastructure, fixed income, commodities or real estate.