Valerio
Baselli
:
Hello
and
welcome
to
Morningstar.
Thematic
strategies
have
been
expanded
rapidly
in
recent
years,
with
exchange-traded
funds
leading
the
way.
Investing
in
a
thematic
ETF
is
an
easy
way
to
gain
exposure
to
a
trend
you
believe
in
but
be
aware
that
they
could
be
volatile
and
such
trends
are
very
different
one
from
another.
To
take
stock
of
the
thematic
landscape,
today
I’m
joined
by
Aanand
Venkatramanan,
head
of
ETFs,
EMEA,
at
Legal
&
General
Investment
Management.

So,
Aanand,
after
having
experienced
a
booming
period
in
the
post-covid
recovery,
thematic
strategies
have
overall
struggled
over
the
last
two
years,
of
course
some
themes
more
than
others.
How
do
you
judge
today
the
health
of
the
thematic
landscape
and
what
do
you
expect
from
thematic
investors
in
the
second
part
of
the
year?


Aanand
Venkatramanan
:
Hi,
Valerio.
Thanks
for
having
me
here.
So,
I
would
say
to
answer
your
question
straight
away,
I
would
say
in
the
last
12
to
18
months,
I
would
bucket
thematic
strategies
into
three
groups.
One
that
has
sort
of
outperformed
or
mimicked
the
performance
of
I
would
say
S&P
500
ex-Mag
Seven
and
then
so
on.
The
other
one
is,
I
would
say,
themes
that
have
kind
of
tracked
the
broad
market
cap
benchmarks
more
or
less
in
line.
And
the
third
would
be
the
category
where
some
of
the
themes
which
underperformed
the
broad
market
cap
benchmarks.

On
the
first
category,
clearly
AI
and
emerging
trends
in
cybersecurity
clearly
sit
there
where
the
outperformance
over,
let’s
say,
MSCI
or
S&P
500
equal
weighted
is
quite
discernible.
Clearly,
with
the
background
that
over
the
last
12
to
18
months,
most
of
the
performance,
I
would
say,
in
typical
market
cap
benchmarks
have
come
from
the
Magnificent
Seven
names.
So,
if
you
bear
that
in
mind
and
if
you
were
to
compare
any
theme
with
the
S&P
500
ex-Mag
Seven,
I
would
say
that
would
be
a
good
benchmark
to
use.
And
particularly
the
fact
that
themes
also
have
many
small
and
mid-cap
stocks.
And
in
the
second
category
is
where
you’ve
seen
themes,
let’s
say,
like
clean
water
and
so
on
that
is
cross
sectors
and
industries,
e-commerce,
logistics
and
so
on,
which
have
different
risk
and
correlation
characteristics
versus
a
pure
tech-oriented
theme.
And
then
finally,
in
the
third
category
is
where
you’ve
seen
more
renewable
stocks
and
I
would
say
stocks
that
are
related
to
the
clean
energy
theme,
which
have
kind
of
suffered
some
amount
of
underperformance
last
year
as
cost
of
capital
increased
and
valuations
came
down
because
of
thinner
margins.

So,
I
would
say
these
are
predominantly
the
three
buckets
that
I
would
put
them
into.
But
if
you
were
to
go
back
further
and
look
at
it
from,
I
would
say,
the
beginning
of
the
covid
lockdown
period
and
so
on,
the
performance
characteristics
do
look
a
bit
different
because
the
bounce
back
that
happened
in
2020-2021
was
quite
strong
and,
in
a
sense,
some
of
themes
that
have
remained
there
have
corrected
themselves
from
that
point.


Baselli
:
And
I
mean,
as
you
said,
unsurprisingly
among
the
hottest
themes
lately
have
been
artificial
intelligence
or
even
blockchain,
for
example.
On
the
other
hand

and
this
could
be
a
surprise
somehow

clean
energy
and
solar
stocks
in
particular
have
been
suffering.
What
do
you
expect
from
the
larger
theme
of
the
energy
transition
and
what
is
the
best
way
for
investors
to
be
exposed
to
it,
in
your
opinion?


Venkatramanan
:
Brilliant.
I
mean,
when
you
look
at
it

so,
when
it
comes
to
renewables,
I’m
a
firm
believer
in
economics.
When
it
comes
to
renewables,
today,
solar
and
wind
are
the
cheapest
form
of
power
in
most
parts
of
the
planet
across
many
countries.
So,
what
does
that
mean?
So,
if
any
country
or
a
company
wants
to
install
new
power
generation
capacity,
solar
would
be
your
cheapest
and
quickest
to
build
and
commission.
Whereas
if
you
kind
of
compare
that
with
nuclear
or
thermal,
even
the
construction
phase
is
so
prolonged,
it
could
take
anywhere
between
five
to
10
years
to
build
some
of
these
plants
in
certain
places.
Then
you’re
talking
about
delayed
commissioning
times
and
escalated
costs.
So,
by
default,
many
countries
and
many
companies
are
switching
to
renewables,
one,
because
of
the
whole
net-zero
climate
transition
goals,
but
the
other
is
purely
driven
by
economics.
And
I
feel
that
is
the
greatest
driver
in
my
view,
where
the
economics
have
stacked
up
in
favour
of
solar
and
wind
nicely.
But
yes,
in
the
recent
past,
we
have
seen
some
corrections.
And
there
are
a
few
reasons
for
that.

I
mean,
the
cost
of
capital
right
now
with
higher
interest
rates
has
clearly
gone
higher.
So,
if
anyone

if
a
power
generator
or
an
independent
power
producer
wants
to
build
their
plants,
clearly
the
borrowing
rates
are
higher,
and
that
has
led
to
some
slowdown
in
deployment
of
capital.
And
on
the
other
hand,
when
it
comes
to
existing
power
producers,
who
have
locked
in
certain
prices
in
there,
what
you
call
as
power
purchase
agreements,
for
a
period
of
let’s
say
five
years
or
so
on,
you
then
had
a
scenario
last
year
where
their
receivables
were
fixed,
but
their
interest
costs
have
gone
up.
And
clearly,
because
of
that,
there
were
margin
compressions
and
you
saw
valuations
going
down.
But
now,
as
we
enter
into
a
scenario
where
there
could
be
some
level
of
relief
when
it
comes
to
interest
rates,
then
as
the
cost
of
capital
goes
down,
some
of
these
announced
projects
will
start
taking
shape
and
start
to
be
constructed
and
commissioned,
and
that
will
be
a
demand
driver
for
some
of
these.

I
would
say
the
long-term
drivers
haven’t
disappeared.
We
are
still
facing
a
massive
challenge
in
front
of
us
in
terms
of
climate
change,
and
we
need
to
address
that.
And
solar,
wind
will
form
a
very
major
role
in
helping
us
transition
away
from
conventional
sources
of
power
to,
I
would
say,
more
renewable
sources
of
power.


Baselli:

Very
interesting.
Finally,
if
you
had
to
choose
three
themes
to
invest
in
today,
what
would
they
be
and
why?


Venkatramanan
:
I
mean,
clearly
the
obvious
one,
I
would
say,
that
comes
to
my
mind
straight
away
is
anything
AI
related.
And
clearly,
that’s
a
tectonic
shift
happening
at
the
moment,
right,
in
terms
of
our
adoption
of
AI
from,
I
would
say,
more
high-performance
applications
all
the
way
to
our
smartphones.
And
you’ll
see
that
AI
is
going
to
start
touching
each
of
these
places
across
all
sectors,
right
from
individuals,
corporations
to
governments,
even
more
over
the
next
decade
or
so.
And
an
allied
field
that
I
feel
will
benefit
from
that
tailwind
and
the
driver
is
going
to
be
emerging
trends
in
cybersecurity.
Again,
that’s
another
theme
where
we’ve
seen
very
interesting
performance
characteristics,
particularly
over
the
last
12
to
18
months.
As
AI
grows,
we
need
to
kind
of
defend
ourselves
better
when
it
comes
to
cybersecurity.
So,
the
emerging
sectors
and
segments
within
the
cybersecurity
theme
is
starting
to
show
those
signs.

And
on
the
third
front,
I
would
say
it’s
a
mix
of
both
battery
technology
and
renewables.
Even
with
battery
technology,
there’s
been
a
lot
of
talk
of
slowdown
in
electric
vehicles
sales.
But
when
you
actually
look
a
bit
deeper,
the
market
has
slowed
down
from
very
high
double-digit
growths
to
I
would
say
still
lower
end
of
double-digit
growths.
So,
it’s
not
that
it’s
gone
negative.
The
market
is
still
growing
at
actually
on
a
relatively
faster
pace.
But
it’s
just
that
the
rate
of
that
what
was
kind
of
anticipated
to
be
exponentially
fast
has
kind
of
come
down
to
more
moderate,
I
would
say,
now
a
sustainable
fast
growth
rates.
So,
I
would
say
still
very
positive
on
those
trends
against
the
reasons
that
I
just
outlined
and
discussed.
So,
I
would
say
it
will
be
these
three

so
AI,
emerging
trends
in
cybersecurity
and
a
mix
of,
I
would
say,
battery
technology
and
clean
energy
themes.


Baselli
:
Thank
you
so
much,
Aanand.
For
Morningstar,
I’m
Valerio
Baselli.
Thanks
for
watching.

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