Mapping Our Thematic Strategies to the Portfolio
Thematics done right can help uncover alpha drivers for our holdings.
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Over the weekend, we posted our latest collection of ripped-from-the-headlines data points for our thematic strategies and the portfolio. But it's been a while since we last shared those strategies and mapped them to the portfolio’s holdings. So, for newer members and those who are looking for a refreshed mapping given the moves we’ve made with the portfolio quarter to date here we go.
Our Definition of Thematics
Before we get started, we would remind folks that we use thematic strategies to identify companies positioned to benefit from unfolding structural changes across the evolving landscapes of the economy, demographics, psychographics, technology, regulatory mandates, and a few others. Our thought process is these tailwinds should push on the businesses of well-positioned companies, driving superior revenue, EPS, and cash flow. Typically, that drives multiple expansion and paired with EPS growth it tends to translate into what Wall Street refers to as alpha, or outperformance relative to the S&P 500.
Below you will see some companies listed across more than one thematic strategy. One thematic tailwind is powerful, but the intersection of two or more is even more so.
You’ll also notice that Bank of America BAC, Morgan Stanley MS, and Universal Display OLED do not fit into any of these thematic buckets. Our thinking is If we have to force a company into a theme, it probably doesn’t belong, and we want to avoid a common ETF trap and maintain a high degree of purity with these strategies.
Each of those three companies has strong tailwinds of their own. Perhaps at some point, we’ll have a well-formulated “disruptive technologies” theme to house Universal Display that isn’t so broad-based that it doesn’t seem ridiculous.
Thematic Definitions and Portfolio Mapping
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it. Elevance Health ELV, Labcorp LH.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts. Apple AAPL, Alphabet GOOGL, Marvell MRVL, Microsoft MSFT, Nvidia NVDA, Qualcomm QCOM.
Cash Strapped Consumer - Companies poised to benefit as consumers stretch the disposable spending dollars they do have. Costco COST.
CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing. Applied Materials AMAT.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing. Alphabet, Amazon AMZN, Meta META, ServiceNow NOW.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption, or destruction of data. First Trust Nasdaq Cybersecurity ETF CIBR.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
Digital Infrastructure & Connectivity - The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment. Eaton (ETN), Marvell, Nvidia.
Digital Lifestyle - The companies behind our increasingly connected lives. Apple, Alphabet, Meta, Trade Desk (TTD).
Digital Payments - This model focuses on companies benefitting from the accelerating structural adoption of digital payments and financial technology (FinTech). Mastercard (MA) and to a modest extent Apple and Alphabet.
Energy Pain Point – The International Energy Agency forecasts electricity usage to more than double by 2026 compared to 2022 with continued growth expected due to AI, data center, EV charging, and other demand drivers. Eaton.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption. Dutch Bros (BROS), PepsiCo (PEP).
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels. Builders FirstSource (BLDR), United Rentals (URI), Vulcan Materials (VMC), and Waste Management (WM).
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits. Eaton (ETN), United Rentals (URI), Vulcan Materials (VMC), and Waste Management (WM).
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy. Axon Enterprises (AXON), Lockheed Martin (LMT).
