To be a long-term investor requires thematic investing because markets and economies are complex adaptive systems, according to Tim Hodgson, global head of the thinking-ahead group at Towers Watson.
Hodgson told delegates at the Towers Watson Ideas Exchange in Sydney that economies and markets are complex and adaptive, their path is not random and the future is not predictive.
“We don’t live in a linear world. We must hold truths in our head while we navigate the future. A single market price cannot reflect this,” he says.
Towers Watson believes that there are a number of interconnected issues that will converge in the next decades, and which it outlines in its 2013 secular outlook on thematic investing, which will require transformational change.
“It is coming straight at you: the asset owner and you have to deal with it whether you like it or not,” he says.
Recognition of the interconnectedness of these issues is essential.
Hodgson says traditional investment thinking is drawn heavily from economics, which has separate disciplines. The micro side of economics is well developed and the industry is disciplined in how to optimise a portfolio, value a company or price a derivative, all in isolation. But the macro side, including the emergence of bubbles, is almost completely unknown.