Thematic Equity Strategy_ It’s Still a Growth Market

Summary of Thematic Equity Strategy Conference Call Industry Overview - The thematic equity market remains a growth market in 2025, with growth themes and key indices outperforming on an equally weighted basis, despite cap-weighted returns being influenced by the "Magnificent 7" stocks [1][2][3] Key Points Market Performance - Year-to-date, growth themes are outperforming value themes when measured on an equal-weighted basis, indicating a broadening of the growth trade beyond the Magnificent 7 [2][9] - The NASDAQ-100 has lagged behind the S&P 500 on a cap-weighted basis, but equal-weighted measures show that growth stocks are performing well [8][19] Investment Strategy - A balanced approach is recommended, focusing on incremental alpha opportunities within a Growth-Cyclicals/Defensives barbell allocation [3][10] - The strategy emphasizes managing risks associated with rising rates, AI disruptions, and tariffs, while maintaining exposure to growth, cyclicals, and defensives [7][43] Thematic Updates - Republic Services (RSG) has been added to the Thematic 30 recommended list, replacing Edison International (EIX) due to better expected returns and operational efficiency [5][35] - RSG is highlighted for its low market beta and expected improvement in return on equity (ROE) driven by operational efficiencies [36][37] Performance Metrics - Thematic 30 has outperformed the Russell 1000 benchmark by over 300 basis points, indicating strong performance amidst market volatility [29] - Growth themes have shown an average year-to-date total return of 4.68% on an equal-weighted basis, compared to 3.39% on a cap-weighted basis [25] Sector and Theme Analysis - Key themes include Artificial Intelligence, Digital Leisure, FinTech, and Pollution Solutions, with varying performance across sectors [14][27] - Notable performers include Wearable Technology (12.87% return) and Digital Leisure (12.31% return) on an equal-weighted basis, while Video Gaming has underperformed significantly (-6.28% return) [28][33] Additional Insights - The report emphasizes the importance of focusing on high-quality, less rate-sensitive exposures in defensives due to ongoing rate risks and inflation concerns [12][43] - The overall strategy suggests that investors should be patient and focus on incremental alpha opportunities rather than attempting to time market rotations [11][44] Conclusion - The thematic equity landscape in 2025 is characterized by a focus on growth, with a balanced approach recommended to navigate various market risks. The addition of Republic Services to the recommended list reflects a strategic shift towards companies with strong operational efficiencies and lower market sensitivity.