The HDS fund focused on companies that were able to sustainably distribute strong dividends; the firm launching the fund in 2010 on the back of its successful product in Japan, which followed the same strategy around utilities companies, Schaufelberger told Fund Selector Asia on a recent visit to Hong Kong.
“We thought we could have a global product that was around that income utilities space, but it didn’t actually pick up in many of the markets. So what we did is use the existing structure to launch the smart city strategy,” she says.
The fund was then repositioned into the Pictet Smart City Fund, which fully transitioned at the end of August, says Schaufelberger, noting that 75% of the fund’s holdings are new. The fund is concentrated with 44 names.
Besides being a thematic fund, the new product follows a completely different strategy. The HDS fund was a value-oriented product that provided income to investors, while the smart city-themed product is more of a growth fund, she explains.
"We are trying to gauge is how much a company is linked to the theme."
After the repositioning, the fund has had inflows from investors instead of outflows, according to Schaufelberger. Assets in the product increased to about €700m (£623.5m, $795m) by 30 October from €630m at the beginning of September, according to FE data.
The smart city fund invests in companies that contribute to or profit from the trend of urbanisation, says Schaufelberger.
It identifies three themes:
- ‘Building the city’ – companies involved in the design, construction and financing of cities;
- ‘Running the city’ – which includes companies that provide the backbone and services; and
- ‘Living in the city’ — companies that offer solutions for housing and recreational activities.
The manager invests in companies depending on their ‘purity’, meaning how much of a company’s revenue is exposed to the theme the firm is looking at.
For the smart city product, the purity level is at least 50% of the companies’ revenues, according to Schaufelberger.
“Essentially what we are trying to gauge is how much a company is linked to the theme. We don’t know what’s going to happen tomorrow [in the equity markets], but we can identify and put a number on those trends or themes.”
The purity aspect is also aimed at reducing the chance that holdings in one of the firm’s 10 themed funds will overlap with another and with the MSCI World Index.
The target is a 10% maximum overlap between funds, says Schaufelberger. The 10% wall is necessary, considering the firm has three technology-focused funds.
The smart city-themed fund’s top holdings include financial services names, which is odd for a fund that focuses on urbanisation. MasterCard and Visa have a combined 7% weighting, while Singapore-based DBS Bank accounts for 3.5% of the portfolio, according to Shaufelberger.
She explains that both Visa and MasterCard are now focusing on digital payments to make cities more efficient.
Turning to DBS, she says that the bank does a lot of financing for projects in Singapore, which is one of the smartest cities globally.
The bank also provides loans to south-east Asia companies that have a focus on developing smart city technology.
“The bank is very focused on the smart city trend through its activities in Southeast Asia, so you wouldn’t have just any financials in there,” she adds.
The Pictet Smart City Fund versus its reference benchmark since the fund’s repositioning