What will change the world over the next 20 years? And if you think you know, are you willing to put money on it?
Long-term changes to factors such as population, climate and technology will shape investment returns for decades and identifying them early is the holy grail for investors.
No one knows what’s around the corner, but here we’ve sought to identify some big investment themes that look likely to generate rich returns over the next couple of decades – and warn against getting carried away in the pursuit of them.
With the help of investment experts Tim Cockerill, of wealth manager Rowan Dartington, and Gavin Haynes, of financial adviser Whitechurch Securities, we provide some fund and trust tips to help retail investors get on board.
Technology: Back in favour among growth seekers
‘The tech sector has matured markedly from when the dotcom bubble burst,’ says Haynes. ‘It was about investing in companies with blue sky ideas and no profits. It was a gold rush in trying to guess winners.’ ‘It was out of favour for a long time, understandably. In the last three to five years it’s come back into favour because investors have been looking for areas of growth in a difficult global economic climate. They favour companies that can innovate and grow profits against a difficult backdrop.’
He says investors need to keep in mind both the opportunities and threats created by technology. There are opportunities in areas like social media and cloud computing, whereas the retail, media and healthcare industries are vulnerable.
‘It’s important when picking a portfolio to ensure companies are not under immediate threat from technology,’ warns Haynes. ‘Protect your portfolio and invest in areas that are sustainable.’
Cockerill sees opportunities in both biotech and consumer electronics – and there are also bound to be new products in the next few years that haven’t even occurred to us yet.
‘It will always move forwards. There will always be opportunities. When they do come around the uptake of them is getting faster, and the opportunity to replicate them is faster,’ he says.
‘The right investment in technology can be very successful for investors.’It’s embedded in everything now. You might not like what it’s doing but it’s there.’
Climate change: Look beyond wind turbines and solar panels Climate change is going to make a huge difference to the planet even though the full consequences are as yet unknown, says Cockerill.
He reckons governments will be forced by necessity to step in and tackle the problems that arise – China especially since it has 20 per cent of world’s population and just 7 per cent of the world’s fresh water.
From the investment angle, it’s not just about wind turbines and solar panels but fast-changing sectors including industrial energy efficiency, pollution control, transport efficiency, recycling, water and waste management.
Cockerill thinks you need a specialist fund for some of these areas – to keep on top of companies around the world working on pollution control systems for instance.
Population trends: Healthcare and food are growth sectors
Changing world demographics mean the population is aging in the West and both growing and getting richer in developing countries. Investors can look to the agriculture and health sectors to exploit these long-term trends.
‘There is no doubt we are seeing a long term demand growth for foodstuffs,’ says Haynes. ‘The key factors are increasing population, changing dietary habits in emerging markets, and the use of biofuels which affects demand for grain.
‘Again like the oil price the key thing is to look at the structural long-term drivers. Investing directly in commodities can be highly unpredictable because of short-term weather patterns. These commodities are also widely traded on futures markets and very much driven by short-term speculation.’
Haynes suggests people instead invest in agricultural businesses – fertiliser producers, machinery makers and those specialising in more efficient farm methods.
Adopted fromThis is Money
