AllianceBernstein looks at the bigger picture
With the focus on long-term goals, the asset manager’s Catherine Wood talks about the role of themes in her work.
The Germans and English use similar metaphors when talking about the problem of missing the bigger picture by focusing too much on detail. ‘Den Wald vor lauter Bäumen nicht sehen’ mirrors the English ‘not seeing the wood for the trees’.
Catherine Wood, AllianceBernstein’s chief investment officer for thematic portfolios, focuses on ‘den Wald’. Capturing the bigger picture of themes is an art lost to asset management as analysts focus on specific sectors, not transcend them, she says.
A theme must cross sectors, among other attributes, to be investable for Wood and her four-strong research team. They have £5bn ($8.14bn), including $300m, in two portfolios: Global Thematic Research and US Thematic Research, both established in 1996 and 2001, respectively.
Wood’s thematic research team does not analyse individual balance sheets or income statements.
She reads reams of statistics and seeks links between disparate fields, rather than deducing anything from just one.
In her words, her team: “focuses on big, disruptive themes and how they will play out”. These themes are as follows: ‘Web 2.0’ revolves around how technology will be delivered and consumed in future; ‘Financial reform’ involves the regulatory and structural change in the financial sector, and this spilling into other industries; ‘Emerging middle classes’, particularly in developing markets, can benefit various industries, focused on services and products.
Wood turned to ‘energy transformation’ initially due to industries having to combat climate change in 2005. The theme received extra impetus recently after Japan’s nuclear disaster.
One step ahead
She says: “Analysts have become specialised in short-term, bottom-up analysis. If a theme cuts across sectors, the odds are we will find it first.”
Many managers were criticised for missing the crisis, or realising it too late. Red flags appeared for Wood’s team in 2006 by seeing a number of usually inimical US regulators writing a white paper together, voicing concern about risk taking and exotic home equity loans.
By May 2006, her colleagues agreed Washington would enter the debate, and began reducing housing-related equities. Their resolve grew as month-on-month house prices fell sharply in 2006 and 2007, although 8-12% year-on-year price increases hid the shorter-term falls.
AllianceBernstein’s thematic funds were largely ‘risk-off’ in financials by 2008 before Bear Stearns was rescued by JP Morgan Chase, Freddie Mac and Fannie Mae by Washington and Lehman Brothers collapsed. Post-crisis, Wood seeks the ‘new winners’ from “some pretty extreme shifts in market share”, even beyond the banking sector.
She says: “Non-bank financial services companies will gain tremendous share, as regulation from the crisis has been completely focused on banks.”
Basel III leads banks to shrink asset bases and sell some lucrative units. Wood has bought into custodians – Bank of New York and State Street – while holding none of the biggest banks, however cheap. Wood says: “The political focus on the big banks is the reason some will not be able to raise some of the fees.”