Global Opportunities

Philosophy

The ING Global Opportunities strategy is an equity strategy that identifies opportunities across the world’s equity markets with the use of clearly defined investment themes. The investment themes describe the different drivers behind the earnings growth potential of individual stocks and reflect longer term developments in the real economy. The thematic framework incorporates a top-down approach through the allocation to investment themes and sub-themes as well as bottom-up elements through the active selection of stocks.

A unique property of the strategy is the consideration of correlations between the different investment themes represented in the portfolio, a refinement that allows us to manage both individual company and market risks. The approach also allows us to dynamically allocate exposure to groups of stocks that are influenced by similar drivers of return.

Objective

We aim to outperform the MSCI (AC) World Index by 2-4% annualized over 3 year periods. The targeted ex-ante tracking error is 4-10%.

Process

Identification of themes and sub-themes – Our investment themes originate from analysis of the real economy, the driving forces behind markets for products and services, the economic supply chain and the fundamental reasons why companies exist. The existence of most companies is justified because they bridge the gap between supply and demand by bundling the right resources, people and information in one place. We look beyond GICS sectors and seek to understand the forces that drive businesses.

We identify three external sources (supply, demand and the economic environment) and two internal ones (process and product) that have the ability to increase the value added potential of a company. In order to be identified as an investment (sub-) theme in our framework, an internal or external change in a value added driver has to be clearly observable in terms of a well-defined impact on an industry, product or service. A theme has to be sustainable for a significant period of time and finally, it has to be investable, i.e., clearly linked to a specific group of stocks. Our seven main themes are:

• Economic Growth
• Technological and Industrial Innovation
• Changes in Consumer Behavior
• Environmental Changes
• Digital Revolution
• Social and Political Changes
• Shifts in Demography

Stock Selection – Once the main themes (expected life of 2-10 years) and sub-themes (less than 2 years) have been identified, stock selection proceeds by screening the investment universe for stocks that are exposed to the return driving factors of the sub-themes. In essence, we reclassify the investment universe on a sub-theme level, which defines the opportunity sets. From the opportunity sets we select the stocks to be included in the portfolio. Defining elements in this selection are:

• Exposure to our themes and sub-themes
• Relative positioning within a theme
• Stock attractiveness as defined by our internal analysts
• Contribution to overall portfolio return and risk

Portfolio Construction – A multi-factor risk model helps determine the allocation to sub-themes and the weights of the individual stocks in the portfolio. The model estimates overall conditional risk of each individual stock as well as sensitivity to systematic risk factors. This ensures desired level of diversification on both the stock and theme levels. At the theme level, the historical correlations between investment themes are considered in order to impose diversification. The resulting portfolio of stocks exhibits pure exposure to chosen investment themes and minimizes exposure to unintended risk factors.

Our structured, risk based approach to portfolio construction enables us to constantly and correctly target themes and sub-themes that are currently in play. At the same time we minimize downside risk through diversification across themes and sub-themes. This is an essential element of the investment process.