As ETFs gain in popularity, the difference between investment strategies is not always clear.
"Some investors are drawn to the idea of an individual fund manager's ability to pick winners and feel that knowing the exact criteria for inclusion into a fund is not essential. For others, the ability to look under the bonnet and understand how the machine works is important. Ultimately, it can often come down to investor preference," says Aanand Venkatramanan, Head of ETFs, EMEA at LGIM.
LGIM blends active research with actively designed investment strategies - an approach that goes beyond what investors may see as index investing.
"We understand that themes, particularly themes in the early stages, cannot be tracked in a purely passive manner," says Venkatramanan.
The firm works with third-party providers that focus on specific themes to derive bottom-up, evidence-based proprietary data. The data are then used to design investment strategies that capture companies at the forefront of innovation addressing demographic, energy and technology megatrends.
"Investors can think of it as replacing a pure play active manager with a highly disciplined, rules-based, fully transparent strategy that has low overlap with mainstream indices - while still providing the liquidity investors need." he says.
In the case of clean energy, the industry is still in the early stages and poised for growth over the next couple of decades.
"It's very difficult to identify winners and losers at this stage, so our investment approach and philosophy is to identify a basket of stocks that not only seeks to provide purer access to the themes, but also grows and evolves with the theme," says Venkatramanan.
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