Populations are increasing, wealth is growing and people are living longer. All of these global developments play into the hands of thematic investors. Rob Griffin looks at how investors are exploiting these explosive trends
Interesting global investment ideas abound. Whether it’s the rise of technology, the desire to improve the environment, or the remarkable developments in healthcare, there is a plethora of growth stories out there.
Demographic shifts, urbanisation, artificial intelligence, political changes, and the pressure to combat climate change are among the wide variety of themes fund managers are pursuing.
But the tricky part is knowing how to profit from them, says Adrian Lowcock, investment director of multi-manager Architas. ‘It is not always clear who the winners and losers will be,’ he says. ‘Even when there are changes it can still be established players that profit.’
Lowcock says some themes, such as demographics, can become so all-encompassing that they affect companies across a broad cross-section of industries. In these cases, he suggests, it might not be obvious that changes are actually taking place.
One of the biggest trends he’s noticed is so-called disruptive technology, which includes everything from robotics and driverless cars, to a cashless society. Although such technology naturally improves efficiencies, it doesn’t necessarily boost the GDP of an economy.
‘Disruptive technology is creeping into everything, from finance to cars,’ he says. ‘It affects how we work, how much we earn, and the productivity of the economy, as well as inflation and economic growth.’
It’s a point echoed by Tom Walker, manager of the Martin Currie Global Portfolio fund, who highlights how Apple’s Steve Jobs made good on his promise to reinvent the phone a decade ago. The fund’s decision to invest in the company back in 2008 has proved to be a good call.
‘The success of the iPhone is based on the richest ecosystem that has ever been built,’ he says. ‘You can now download 2.2 million applications for your phone – up from 800 in July 2008 – so the answer to all your problems is in an app.’
Cloud computing is another important theme as it can significantly reduce a company’s investment in hardware and software, according to Citywire AA-rated Josh Spencer (pictured), manager of the T Rowe Price Global Technology fund.
‘It’s one of the most dominant trends in technology and still offers investors meaningful long-term growth potential,’ he says. ‘Companies that have strategically invested in their cloud capabilities are uniquely positioned to outperform competitors that are now trying to catch up.’
Spencer says an increasing appetite for products and services, including streaming video services and augmented reality, should boost demand for cloud infrastructure. As such it’s a trend with multiple years of growth potential.
To illustrate the growing appeal for on-demand computing power, he highlights Amazon.com’s Amazon Web Services (AWS), which was launched in 2006 and has enjoyed rapid growth. Revenues were less than $1 billion in 2011 but jumped to over $12 billion in 2016.
‘AWS’s scalability allows companies to pay for only the amount of server capacity that they use, effectively ending the days of idle capacity,’ he says.
‘AWS and similar cloud-based infrastructures and platforms, like Microsoft’s Azure and Alibaba Group Holding’s AliCloud, help facilitate e-business, Big Data analytics, enterprise applications, and many other functions.’
However, technology isn’t the only important global theme. For example, there are plenty of attractive investment ideas coming out in response to population growth, urbanisation and the changing consumption patterns of a rising middle class, says AA-rated Pascal Dudle (pictured), manager of the Vontobel Fund Clean Technology strategy.
‘More people living more densely together, and consuming more, puts pressure on finite resources and has a negative impact on our climate,’ he says. ‘Clean technologies can be part of the solution.’
He highlights companies improving the energy efficiency of houses, the new breed of electric cars, and resource-efficient production processes as some of the areas where the most attractive opportunities can be found.
Dudle particularly favours companies with structural drivers. One such name is Irish company Kingspan, a manufacturer of insulation panels and boards for buildings and houses.
‘Its insulation panels provide significantly higher insulation values relative to traditional materials, helping customers reduce their annual energy consumption by around 180,000 million kilowatt hours,’ he says.
At present, Dudle’s active themes are clean water, building technology, low-emission transportation, resource-efficient industry, clean-energy infrastructure, and life-cycle management. These are seen as the core investment areas within the environmental space.
‘Each one holds a larger number of well-run companies with competitive products and services,’ he says. ‘Economically viable and well-tested products are more widely adopted at a faster rate, generating an immensely positive impact on the environment.’
The good news is such trends look set to stay. ‘Leaders of many countries promote action to fight climate change,’ he says. ‘China has just increased its 2020 installation target for solar power and European foreign ministers have committed to reinvigorating global alliances on climate policies.’
He believes the strong push towards electrification of the automotive industry in Europe and China will cause significant disruption. This will require vast amounts to be spent on research and development, as well as expanding production capacity.
‘We are convinced that companies with leading technologies in these market segments will be able to benefit and achieve attractive growth rates,’ he says.
Also investigating new avenues is Dieter Küffer, manager of the RobecoSAM Sustainable Water fund. He is overweight suppliers of analytical equipment as he expects them to benefit from growth opportunities within food and environmental testing, in both developed and emerging countries.
‘Water treatment systems suppliers is another overweight as this market is expected to offer good growth opportunities,’ he says. ‘The fund has exposure to Chinese firms and Western companies expected to benefit from the water investments of the 13th Chinese Five Year plan.’
Alongside long-term drivers such as population growth and urbanisation, Küffer is also making the most of short-term trends such as the increasingly stringent regulation for water quality, new infrastructure construction, metering and water recycling.
‘These are also expected to support the water industry in the future,’ he says. ‘The implementation of the United Nations’ 17 sustainable development goals is likely to support environmental investing further,’ he says.