Allocating to Thematic Investments

Koye Somefun, Romain Perchet, Chenyang Yin and Raul Leote de Carvalho

Financial Analysts Journal, 2023, vol. 79, issue 1, 18-36

Abstract: We introduce the notion of themes as an additional investment dimension beyond asset classes, regions, sectors and styles, and propose a framework to allocate to thematic investments at a strategic asset allocation level. Allocating to themes requires discipline because thematic investments are not only exposed to the theme but also to the traditional risk factors. Our approach uses a framework based on robust portfolio optimisation, which accounts for the expected excess return from the exposure to the theme and from exposures to traditional risk factors. We provide an example to illustrate how thematic investments fit in traditional multi-asset portfolios.

Date: 2023
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DOI: 10.1080/0015198X.2022.2112895

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