FAQ

Tema is built on five differentiating pillars:

• Process: Bottom-up fundamental
  research-led investment process.
• People: Experienced team with sector
  expertise.
• Product: Compelling innovative
  exposures
• Positioning: Precise and
  defined underlying
  exposures

Tema aims to construct strategies that satisfy four key criteria:

• Differentiated: We only offer novel and unique themes.
• Compelling: We focus on themes that give exposure to structurally attractive parts of the market that, through active management, we can buy at what we think are cyclically depressed valuations.
• Precision: Building targeted and coherent thematic exposure.
• Underpenetrated: Our themes often have no or very few competitive alternatives, and those that exist are poorly structured (by virtue of being passive), giving unwanted exposure and high correlation to traditional markets and segments.
• Expert-led: We look for strategies where expertise matters, and we aim to find the right talent to drive our analytical stock selection edge and theme thought leadership.

Tema uses a systematic approach to portfolio construction. After securities are selected, managers size positions in three conviction based buckets - lower conviction, medium conviction, high conviction - each with a specific weighting. Rebalancing then happens actively following a set of systematic guidelines. It should be noted that managers can change positions at any point - by replacing one security by another.

This approach has multiple advantages that are conducive for long term investment success and risk management. It focuses analytical time on picking securities, where data suggests most of the alpha is generated by active managers, and not sizing positions, where on average negative alpha is generated. It combats human biases by constantly forcing managers to evaluate securities against each other and at rebalance points to force the decision to trim winners and buy losers.

Security selection relies on our expert stock pickers. This is an ongoing process, where we look at the quality of the business, fundamentals (like growth and margin structure), balance sheet strength and valuation. We also carefully analyze downside risks.

A key feature of this work is the risk/reward analysis. Here we envision what the shares of the underlying security are worth if everything goes well, and what might happen to them if everything goes bad. The ratio of the returns in each case is the risk/reward ratio and we aim to invest in companies where this ratio is >2x i.e. for every unit of downside risk we can imagine we want to get at least two units of upside risk. This keeps our security selection balanced between reality, valuation today and imagination of the future.

Thematic investment starts with identifying a high-level trend and selecting securities that stand to benefit from this trend materializing. These trends span across traditional boundaries of economic sectors and geographies to give unique exposures.

While they are both types of funds, ETFs exhibit superior qualities as an investment vehicle, such as:

• Liquidity: Trading on exchange means intraday liquidity instead of end of day liquidity i.e. flexibility to buy and sell.
• Price transparency: The price of an ETF is available throughout the day via the exchange price feed.
• Tax Efficiency: The unique two-tier liquidity combined with the basket creation and redemption process means fewer underlying transactions in each ETF, thereby reducing tax leakage.
• Easier access: ETFs no investment minimums and no minimum holding period.
• Holding Transparency: ETFs reveal their full holdings daily, unlike mutual funds which often disclose only the top 10 largest constituents and typically do so monthly or quarterly.

An actively managed ETF is an exchange-traded fund in which decisions on the underlying portfolio allocation are made by a portfolio manager and their team. Meanwhile, a passive ETF tracks an index, a set of rules created ahead of time on what the fund should hold, with no human intervention involved. As a result, passive funds’ performance depends almost entirely on the performance of an underlying market index. Although Tema ETFs are fully active we have, under normal circumstances, a set of systematic portfolio construction and trading rules restrict portfolio activity.

ETFs have two levels of liquidity:

• Secondary market:
  Participation units of an ETF, once issued, trade on a stock exchange just like any other stock. This means the price of each participation unit is dictated by the supply and demand for those units on the secondary market. This trading is helped along by a market maker (a designated broker-dealer firm) that provides a minimum amount of liquidity and uses its own inventory to do so.
• Primary market:
  At any given time on the secondary market, the underlying securities of an ETF also trade on their respective markets. The net asset value (NAV) is determined by adding up the value of all these securities, including cash, subtracting any liabilities, and then dividing that value by the number of outstanding shares in the ETF. The participation unit price “share price” and the NAV can deviate. If they do a manager appointed Authorized Participant (AP, typically a large broker-dealer firm) can step in and create and redeem units in order to bring these two values back in-line. This process usually involves large blocks of participation units (typically 25,000 shares) and are referred to as “creation units”.
  If there is more demand than supply, the participation unit price drifts above the NAV (a premium). The AP will then go into open market, buy a basket of the underlying securities at NAV, deliver this basket to Tema and receive in return newly created participation units. The new units are then sold by the AP on the open market, bringing the participation unit price down in line with the NAV.
  If there is more supply than demand, the participation unit price drifts below NAV (a discount). The AP then goes into the market and buys up participation units, takes these to Tema and redeems them, and receives a basket of underlying securities (worth NAV). The reduction of supply causes the price of the participation units to move up towards NAV.

ETF investors pay a single fee to the managing company, Tema, for providing the investment expertise, administration and other services to the fund. This is typically paid a percentage of the fund’s NAV and is expressed as 0.5%.

Assume an ETF has a stated annual expense ratio of 0.5%. On an investment of $10,000, the expected expense to be paid over the course of the year is $50. If the ETF returned precisely 0% for the year, the investor would slowly see their $10,000 move to a value of $9,950 over the course of the year, as the expense fee was accrued.

Outside of Tema’s control, there may also be brokerage fees and other costs associated. Please ask your investment venue for details.

There are several risks associated with investing in ETFs, just like investing in general including the risk of possible loss of principle due to fluctuation in the price of assets making up the ETF. A comprehensive list of risks associated with each ETF is available in the associated prospectus. These are available on our website.

• Underlying asset risk: ETF investors are exposed to any type of risk associated to the underlying basket of investments. For example, an equity ETF is exposed to the equity market risk of the underlying securities. Look for the risk section of an ETF’s prospectus for detailed explanations risks associated with that fund.
• Currency risk: Some ETFs hold securities denominated in foreign currencies. The value of these currencies can fall vs. the US dollar and lead to another source of unrealized and (should a sale happen) realized loss of capital on underlying securities.
• Pricing differences: The market price of an ETF at any given moment will not always reflect the exact value of the underlying assets. Because ETFs trade on an exchange, investors are exposed to market forces when trading. It is possible that prices could diverge from the net asset value, or NAV.
• Other: There may be other risks that are specific to the exposure of an ETF – for example Frontier market risk, sector risk, credit risk or currency risk. These will be made clear in ETF’s prospectus available on the website.