Thematic Index Widens Its Lead Over the S&P 500 in 3Q 2016
Third Quarter 2016 Performance Report
The Thematic Index is a proprietary index created by Tematica Research that spans more than 170 companies across 17 proprietary investing themes. During the month of September, The Thematic Index rose 0.4 percent in September, culminating in a 3.7 percent return for 3Q 2016 and bringing its year-to-date 2016 return to 11.6 percent. By comparison, the S&P 500 dipped 0.1 percent in September, resulting in a 3.3 percent return for 3Q 2016, more than half of its year-to-date return of 6.1 percent.
During September, The Thematic Index once again widened its lead over the S&P 500, due to strong performance from several themes: Cashless Consumption (+4.4 percent), Asset-Lite Business Model (+4.1 percent), Connected Society (+3.4 percent) and both our Content is King and Guilty Pleasures (+.2.2 percent each) investing themes. All told, 8 of the investing themes in the Index outperformed the S&P 500 during the month of September with returns ranging from 1.3 percent to 4.4 percent.
Not ones to shy away from a full picture, 9 of the investment themes underperformed the S&P 500, with Food with Integrity delivering the weakest performance. That reflects the rash of deflationary food prices that have hit General Mills (GIS), Whole Foods Market (WFM) and Flowers Foods (FLO). This deflationary pressure has also weighed on shares of Campbell Soup (CPB) and Kroger Co. (KR), both of which are components of our Cash Strapped Consumer theme.
On a year-to-date basis, excluding dividends, 10 of the proprietary investing themes in The Thematic Index are handily trouncing the S&P 500 with returns between +8.9 and +32.9 percent vs. 6.1 percent for the S&P 500. While 7 of the investing themes lag the S&P 500, each of them has generated positive returns year-to-date.
Position additions and deletions
From time to time, due to a variety of corporate events — including merger and acquisition activity, company delisting and other similar happenings — the S&P 500 list of companies evolves. For example, S&P recently replaced Starwood Hotels (HOT) with Coty Corp. (COTY) in the S&P 500 because Starwood Hotels is being acquired by Marriott International (MAR).
With the close of the 3Q 2016, similar adjustments are being made to The Thematic Index:
The removal of ARM Holdings (ARMH), WhiteWave Foods (WWAV), ExamWorks (EXAM) and LinkedIn Corp. (LNKD) is pretty clear cut as those companies are being acquired by either other companies or financial buyers. In their stead Tessera Technologies (TSRA) is being added to the Asset Lite Business Model investing theme, plugging the Food with Integrity WhiteWave gap with its buyer Danone SA (DANOY), and adding Chegg Inc. (CHGG) as well as Pearson plc (PSO) to fill in the Tooling & Re-tooling holes.
Following the Department of Justice’s decision to curb its reliance on privately run prisons, a significant headwind for Corrections Corp. (CXW), shared of CXW are being replaced with OSI Systems (OSIS), which provides technology to the security and inspections markets including those for baggage and parcel inspection; cargo and vehicle inspection; checked baggage screening; people screening; radiation detection; and explosive and narcotics trace detection.
Given recent data published by the National Restaurant Association, that shows quick-service and fast casual dining restaurants are undergoing traffic compression and consumer complaining of “sticker shock” as prices escalate, shares of Shake Shack (SHAK) are being replaced with Insulet Corp. (PODD) in the Fattening of the Population theme. Insulet targets the diabetes market with its insulin delivery management systems both in its own OmniPod solution as well as solutions across other global pharmaceutical and biotechnology companies.
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