Understanding investments increases people’s engagement with their savings, says Newton’s Catherine Gill
We are currently living in extraordinary times, and the pandemic is set to have a longterm impact on employment, income and savings for many of us. This has made it harder for many individuals to contribute to their pensions. Consequently, it is ever more important for defined contribution schemes to engage with their members, as it is dangerous to view pension contributions as a luxury that can be forgone, like a holiday, when times are tough.
People are more likely to engage with their pension if they understand it and what it invests in. We think thematic investing is one way that could really help people engage with their pension savings, as themes are easy to understand and relate to. Demographics, for example, is a theme that everyone understands: the world is ageing, we will be working for longer, and we need to save for retirement.
The environment is another: the pressure brought about by climate change is becoming more acute, and will shape all of our lives, and the lives of our children, in the future. These are themes that resonate with people, but can also represent investment opportunities.
Themes exist and can be exploited by investors because the global economy is comprised of constantly evolving forces - technological innovation, social tensions, macroeconomic fluctuations, political changes andenvironmental imperatives - which have the potential to generate long-term dislocations, or ‘disruptive structural change'. As investment managers, we use themes to understand and make sense of this complex and rapidly changing backdrop, and really boil down to what is important when making investment decisions. Themes help us in seeking to identify investment opportunities: we want to invest in the companies providing the products, services and solutions that help address some of these challenges and evolutions. Taking the environment theme (or ‘Earth matters' as we know it at Newton) could mean investing in wind farms, or the supply chain used by electric vehicles - both potential longterm solutions to the climate challenge our world is facing.
A constantly evolving thematic framework enables us to seek strong-positioned and undervalued investments with the aim of obtaining higher returns than the market over a long-term investment horizon. We believe such a focus could be highly relevant for schemes as they seek to deliver better long-term outcomes for their members.
Catherine Gill is a member of the business development team at Newton Investment Management
