Thematics trump the S&P 500 in 3Q 2020

Thematics trump the S&P 500 in 3Q 2020

Last week we closed the books on the third quarter of 2020, which ended with a whimper as September saw all the major US stock market indices give back a portion of their August gains. That lackluster finish was fueled by renewed concerns surrounding the pandemic and its impact on the global economy, the lack of a fiscal stimulus deal in the U.S., and risks of a contested presidential election. Despite September’s retreat, the major US equity indices closed the quarter up between 5.3%-9.4% % with the Russell 2000 bookending on the low end while the Nasdaq Composite Index led the pack leaving the S&P 500 and the Dow Jones Industrial Average in the middle. By comparison, the Tematica Research Cleaner Living Index finished the September 2020 quarter up 27.1% even though the index moved lower during the final month of the quarter. That climb during the quarter capped off a 45.0% move higher in the Cleaner Living Index for the first nine months of 2020 vs. just a 4.1% gain for the S&P 500. 

The outperformance of the Tematica Research Cleaner Living Index reflects one of the many structural changes that are unfolding on a global basis, triggered by shifting consumer preferences and behaviors that are leading companies to pivot their business models in response. In the case of Cleaner Living, the index captures the shift toward products and services that are cleaner and better for you, your body, your home, your workplace, and the environment. 

Structural changes, such as those, are identified by Tematica’s investment themes and captured in its indices and model portfolios, all of which have outperformed the broader market thus far in 2020. For the September quarter, the Foxberry Tematica Research Cybersecurity & Data Privacy Index returned 7.1%, which elevated its return for the first nine months of 2020 to 22.7% vs. 4.1% for the S&P 500 and 9.4% for the Nasdaq Composite Index. Similarly, the Foxberry Tematica Research Sustainable Future of Food Indexachieved a gain of 11.4% for the September quarter and outperformed the major US equity market indices with its 10.1% gain for the first nine months of 2020.

In our view the only thing better than the influence of one thematic tailwind is a confluence of multiples themes be it for the Thematic Leader model portfolio or Tematica’s Thematic King that is Amazon (AMZN). The Thematic Leaders model portfolio, which returned 20.2% in the September quarter, is an equal-weighted portfolio showcasing the companies that exemplify each of Tematica’s 14 investment themes. Amazon possesses the highest Thematic Scorecard ranking given its exposure across all of our investment themes.

For the first nine months of 2020, the Thematic Leaders model portfolio was up 61.1% and since its inception in December 2018, the portfolio is up 118.9% compared to 34.2% for the S&P 500. Amazon shares were no slouch either, rising 70.4% during the first nine months of 2020, as consumers embraced digital shopping and companies embraced the cloud amid the pandemic. As impressive as that performance was, however, Amazon shares lagged behind Beyond Meat (BYND) and Farfetch Ltd (FTCH) shares, the respective leaders for Tematica’s Sustainable Future of Food and Living the Life investment themes. 

The outperformance of the Thematic Leaders as well as the Tematica Research Cleaner Living Index, the Foxberry Tematica Research Cybersecurity  Data Privacy Index, and the Foxberry Tematica Research Sustainable Future of Food reaffirm Tematica’s view that sector investing is dead, and to outperform the investment herd one needs to think differently. 

About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

Comments are closed.