AXA Framlington Global Thematics: Reasons for optimism in 2021

Strategy update

The AXA Framlington Global Thematics Fund delivered a strong absolute return of +27.7% in 2020, following solid performance in 2019, where the strategy delivered a total return of +29.1% (net of fees). Despite the headwinds many businesses have faced in 2020, the outlook for the themes within Global Thematics remains intact. The global population continues to age, its emerging middle class continue to grow, and people will increasingly consume online whilst moving towards a more automated society. Importantly, businesses and consumers convey a sense of climate urgency, which is likely warranted as this decade may be our last chance to act...

Past performance is not a reliable guide to current or future performance. Data as at 31 December 2020.

Reasons for optimism in 2021

1. Ageing & Lifestyle

Whilst 2020 was devoted to finding a COVID-19 vaccine, we can fairly assume that 2021 will be oriented towards a mass vaccination campaigns. A successful vaccination programme reduces the size of the potential host population for the virus and we should see a steep drop in new cases, hospitalisations and death. In addition, those programmes are driving optimism that the pandemic may soon be sufficiently controlled to allow withdrawal of social distancing measures enacted in multiple regions – which is likely to drive positively investor sentiment in 2021. Beyond the vaccine and an increasing global optimism, the theme remains well positioned with the irreversible trend of an ageing global population and the underlying opportunities for companies benefiting from long-term changes in consumption patterns.

2. Connected Consumer

2020 and COVID-19 has undeniably brought forward the adoption of online consumption – whether it be by existing consumers increasing their purchases frequency, or by those experiencing their first ever online shopping experience. E-commerce penetration still remains at a low level – c.13% in 2019 of all retail sales (source: Euromonitor 2020) – and is poised to grow over the coming decades as consumer habits are likely to remain sticky whilst becoming even more comfortable with digital usage going forward. This will be further reinforced by “'Gen Z” –  the true ‘digital natives’ generation born between 1997 and 2012 – with an almost permanent online status. Lastly, a gradual shift to a ‘cloud-based world’ will continue to accommodate greater IT flexibility whilst triggering more investments in technology solutions and services (e.g. remote connections, collaboration tools, cloud computing and cybersecurity, etc.).

3. Automation

2020 was clearly flagged for corporates as an urgent race to improve the efficiency of their manufacturing chains. The ‘race’ has just started and we anticipate major spending from businesses to reinforce their capabilities in many areas such as logistics or fulfilment centres.

This increase in capital expenditure (CAPEX) will likely be beneficial to a wide range of automation suppliers, including robotics companies, sensor manufacturers and machine vision specialists. Furthermore, we also anticipate an increasing number of connected devices and “Intelligent Factories” over the coming year, which will support the development of the internet of things architecture where more usage of robotics, software, big data analytics and semiconductors will key to improving efficiency.

4. CleanTech

2020 was also a pivotal year in the shift toward renewable energy and away from fossil fuels. Danish wind farm operator Orsted started the year with a market value three time smaller than

British multinational oil and gas company BP, and is now entering 2021 with a larger one. The framework for 2021 seems well implemented, and it’s likely to to be clean & green. Governments are falling into line, whether it be with the European Union setting out a €750bn green recovery package, the Chinese commitment to net zero by 2060, or even the freshly elected US President strongly supporting the environmental cause. Beyond governments, consumers are also promoting the shift to a lower carbon economy by demanding more sustainable products whilst corporates are constantly innovating and proposing new forms of low-emission efficient solution and resource optimisation (e.g. static energy storage, smart grid solutions, etc.).

5. Transitioning Societies

We believe that increasing domestic consumption from a burgeoning middle class and a related ‘catch-up’ in terms of product penetration and industry consolidation will provide relatively attractive growth opportunities for long-term emerging market investors exposed to the right themes and companies. If we take China for example, it has been one of the stronger performers in the Asian region and globally in 2020, particularly due to a well-contained pandemic situation. Beside, the Chinese government’s 14th Five Year Plan (FYP) –  mapped in October 2020 – paved the way to strong commitments including technology innovation, consumption upgrade, environmental sustainability, targeted urbanization, and a continued liberalisation of its financial sector.