Balancing innovation with discipline: thematic investing through a value lens

Many investors seek long-term structural growth opportunities that complement existing sources of returns by investing in major global trends such as artificial intelligence, consumption, healthcare, and the energy transition. Portfolios aligned with these transformative forces can provide access to compelling returns by capturing the innovation and progress shaping the global economy. Turning a strong theme into a strong investment requires discipline, particularly for value-oriented managers. The challenge lies in avoiding short-term trends or companies lacking solid fundamentals and instead identifying enduring structural shifts and resilient business models that possess sustainable return potential.

Capturing structural growth with prudence

In today’s complex global marketplace, where short-term thinking often dominates, concentrating on the transformative forces shaping the economy can help chart a path to long-term growth. Experienced value investors know that themes alone are not enough. Success requires identifying durable trends, defining a clear thematic opportunity set and selecting securities positioned to generate higher durable profits over time. Identifying idiosyncratic sources of return — those distinct from broad market patterns — is essential. Over time, these differentiated return streams can strengthen portfolio balance and enhance resilience during periods of market weakness. For investors heavily allocated to growth strategies, adding value exposure can help mitigate risks associated with elevated valuations.

Discipline in practice

Value managers approach thematic investing with extreme caution, rigorously applying their fundamental principles to avoid overvalued market narratives. Rather than following the herd into the latest speculative trend, they perform deep bottom-up research to determine if companies aligned with a theme trade at a significant discount to intrinsic value, thereby providing a margin of safety. The focus remains on fundamentals, including a company's financial health, management quality and long-term earnings potential; this acts as a disciplined filter against market fads.

While a megatrend may be powerful, market enthusiasm can push stock prices to unsustainable levels, creating bubbles. For value investors, thematic investing is not about betting on a trend itself, but identifying high-quality, undervalued companies positioned to benefit from durable shifts – effectively using the thematic lens to uncover overlooked opportunities within a strict valuation framework.

This long-term perspective allows value managers to wait patiently for the market to re-price these securities, regardless of short-term volatility — a quality that complements growth-oriented managers and portfolios which often emphasize momentum and rapid earnings expansion.

Applying the value lens to today’s major themes

AI infrastructure: Western Digital’s strategic advantage in the data storage buildout

With AI models driving unprecedented data storage requirements, demand for high-capacity hard disk drives (HDDs) has surged, creating a significant and largely non-cyclical revenue tailwind for legacy storage manufacturers. Western Digital is well positioned, supported by long-term contracts with major hyperscale cloud providers, improving pricing power and expanding operating margins. This combination of structural demand, profitability and financial discipline — including debt reduction and shareholder returns — has contributed to a doubling of its share price in 2025, all while trading at an attractive valuation compared to the high-multiple AI leaders that have long dominated investor attention.

Energy transition: Schneider Electric’s role in grid modernization

Within the energy transition theme, value managers often bypass speculative renewable startups in favour of established industrial leaders like Schneider Electric SE. Such businesses provide the essential but often overlooked infrastructure that enables electrification, grid modernization and greater energy efficiency across the global economy. Schneider Electric combines durable competitive advantages with consistent cash flows and disciplined capital allocation, often trading at more reasonable valuations than high-growth clean energy stocks. Stocks like Schneider Electric can offer investors a margin of safety and a way to participate in the energy transition without assuming excessive valuation risk.

Health care stability: Medtronic as a durable demographic play

Value managers often seek exposure to long-term demographic trends — such as aging populations — through stable, defensive businesses rather than volatile biotech firms. Medtronic plc is one example: the global leader in medical technology benefits from strong recurring revenues through its diversified portfolio in cardiovascular, diabetes and neuromodulation therapies, supported by disciplined financial management and a steady dividend growth. As aging populations continue to drive demand for medical technologies, businesses like Medtronic provide a dependable way to align portfolios with this long-term demographic force.

Consumer staples: Mondelez's resilience through recurring demand

Value managers extend their search for reliable, undervalued businesses into consumer staples where demand for essential goods remains steady regardless of the economic cycle. As a global leader in snack and food brands, Mondelez International Inc. enjoys consistent consumer demand and recurring revenue streams. These characteristics provide defensive attributes and more predictable cash flows that can help balance portfolios tilted toward high-growth and high-volatility companies.

Life sciences: Thermo Fisher and the power of the razor-and-blade model

In the health care sector, the “razor-and-blade” model is favoured by value managers seeking exposure to innovation without the volatility of biotech firms. Thermo Fisher Scientific Inc. (TMO) exemplifies this approach, offering a broad range of analytical instruments, laboratory equipment and life science tools. While the initial sale of equipment is significant, over half of revenue comes from recurring streams such as consumables, reagents and essential services that sustain research and clinical operations. This revenue base provides stability and predictability, while the business’s scale, operational efficiency and disciplined capital allocation reinforce its long-term value creation potential. For investors concentrated in high-growth biotech or pharma, Thermo Fisher offers thematic exposure with potentially lower risk and valuation discipline.

Diversification through discipline

These examples demonstrate how value managers prioritize businesses with inherent stability, durable competitive advantages and recurring revenue streams — qualities that can help portfolios withstand market volatility while benefiting from long-term secular trends. Today’s value managers are not confined to traditional sectors; they participate in the same transformative themes as growth-oriented peers but apply rigorous valuation discipline to ensure a margin of safety.

As a result, this approach often leads them to invest "against the tide", uncovering opportunities where sentiment is poor, but fundamentals remain strong. For investors already positioned in growth strategies, adding value exposure can provide diversification benefits and help mitigate risks associated with elevated valuations — combining structural growth with the discipline and prudence of value investing.

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