What sets these four investment firms apart from their competitors?

In recent episodes, Opto Sessions asked insiders at leading firms Sprott, Tema, GinsGlobal and Pzena about their competitive edge — the one market-beating strategy they believe delivers alpha. Here we recap what they told us.

Over the last few episodes of Opto Sessions, guests from leading asset managers, including Sprott, Tema, GinsGlobal and Pzena, have each revealed the key ingredients they believe give them the edge over their peers in the wider market — the specific themes or strategies they’ve focused on to achieve alpha for their investors.

Below, we take a look at what sets the four firms apart from their competitors — whether it be a focus on companies that benefit directly from the energy transition or AI growth or on good old-fashioned value investing.

Critical minerals only

Mining asset manager Sprott is known for investing in precious metals, including gold, copper, nickel and lithium. However, it is simultaneously focused on energy transition investments as global economies look to decarbonise.

“We try to identify companies that we think are involved in the energy transition,” Sprott’s CEO John Ciampaglia told Opto Sessions earlier this year. “Then we peel back the cover and say, ‘Okay, how are they involved? And what other exposures do they provide?’

“We're trying to focus on the companies with revenues or assets tied very specifically to the critical minerals we think will be the biggest beneficiaries of the transition.”

That’s why Sprott’s ETFs may exclude certain companies, even if they have big market caps, says Ciampaglia. “People might ask, why don't you have, say, Vale [VALE], Glencore [GLEN.L] or Rio Tinto [RIO] in there? The reason is not because we don’t think they're world class. The reality is most of their business is involved in things we don't think are critical.

“Are they important? Sure. But iron ore is not going to be as critical as lithium for the [energy] transition. Or a company might have legacy exposure to coal. Coal is the opposite of what we're trying to achieve.”

The top holding in the Sprott Energy Transition Materials ETF [SETM], which launched in February, is copper miner First Quantum Minerals [FM.TO] with a 5.35% weighting as of 25 July. Copper is seen as integral to the energy transition as it is highly conductive and a crucial component in solar, hydropower and wind power systems. The SETM fund is up 2.4% in the six months to 25 July.

Value investing through thick and thin

For Rakesh Bordia, principal and portfolio manager at Pzena Investment Management, the key philosophy driving his edge is an “unwavering discipline and focus on value investing, with the exact same process and philosophy we have been using for 25-plus years”.

Bordia told Opto that this single-minded commitment means ignoring outside noise: “We will not deviate from it no matter what the market conditions or the investor sentiment is.” During the last decade, the company has sometimes been outperformed by growth investors, but it is now reaping the benefits.

According to Bordia, this approach is especially effective in emerging markets. The largest holding in the Pzena Emerging Markets Fund [PZIEX] as of 30 June is Samsung [005930.KS] with a 4.10% weighting — the South Korean tech giant’s stock has jumped 27% so far in 2023. Over the same period, the fund is up 19.25%.

A focus on fundamentals

Yuri Khodjamirian, chief investment officer of Tema ETFs, told Opto that the company — which launched its ETF platform in May — employs a “holistic process” when weighing up individual stocks for its innovative thematic funds.

Khodjamirian says Tema uses four tests: “The first is establishing the operating base…I need to be confident that this company is able to deliver, whether or not they have the right management team and operating assets.

“The second analysis is of balance sheet and cash flow. If you invest in a business with the wrong balance sheet, chances are you will lose your equity value and never recover. This is really about downside risk protection.”

The last two slices in the pie, says Khodjamirian, are: “What valuation case can you make for these companies?” and “What’s my edge in the stock? You'd be amazed how few fund managers, or certainly the wider investing public, out there ask themselves that question.”

When these pillars are in place, says Khodjamirian: “That's when we think we can produce alpha for clients.”

The Tema Monopolies and Oligopolies ETF’s [TOLL] top holdings include S&P Global [SPGI], Moody’s [MCO] and Airbus [AIR.PA] as of 25 July. The fund is up 6.8% since its inception in May.

GinsGlobal – “We’re following the themes of the fourth industrial revolution”

Finally, Anthony Ginsberg highlights two strategies: the first is applying “equal weighting across 120 broad tech holdings”. The second is “using eight sub-themes that represent the fourth industrial revolution” — all key components of the seismic economic shift we’re currently experiencing.

This digital- and tech-first approach has enabled GinsGlobal to benefit from the recent explosion in artificial intelligence, for example.

The HAN-GINS Tech Megatrend Equal Weight UCITS ETF [ITEK.L] tracks the Solactive Innovative Technologies Index is a portfolio of firms driving innovation in the ‘fourth industrial revolution' sectors, with a focus on global disruptors rather than FAANG stocks. ITEK is up 44% year-to-date.