It is never easy to be an investor during a period of heightened fear, but it is often at times of extreme pessimism when managers can unearth multi-year generators of alpha.
While the post financial crisis period was dominated by the disruption theme, leading to the emergence of the all-conquering FAANG complex, the current market environment of rising rates and elevated inflation is vastly different to the prior decade.
Below, nine investors highlight the themes set to lead the way through the changing market paradigm over the coming years.
Solar deployment
Anu Narula, head of equities at Mirabaud Asset Management
Decarbonisation has become one of the most important themes among investors. In particular, solar energy deployment is estimated to grow 8.3% per annum through to 2050. Rising electricity costs and energy security risks from geopolitical events in Europe should encourage consumers to seek off-grid alternatives, which should further expand the solar energy and storage market as it is relatively quick to deploy.
The companies we invest in are global leaders and highly cash generative. For example, we invest in US residential solar business Enphase Energy, which manufactures and sells solar panel microinverters, solar battery storage and EV fuel cells.
Indian EVs
Jane Andrews, founder and CIO at BambuBlack Asset Management
The global automotive industry is undergoing a paradigm shift. While this shift has been well documented in China and Europe, it is worth noting the multi-billion opportunity in India. India’s EV market is forecast to reach $206bn by 2030, making it the world’s third largest in terms of volume.
While the high cost of EVs remains the key challenge, largely due to expensive compact-sized lithium batteries, these costs are expected to drop as India increases domestic battery production. The federal government has introduced subsidies to incentivise consumers and local auto manufacturers to increase the adoption of electric mobility transport.
Healthcare outsourcing
Ken Wotton, manager of Strategic Equity Capital plc
Some of the best investments I have ever made were in a period when it felt quite uncomfortable – as was the case in 2009 in the aftermath of the financial crisis. When the market dust settles, one area we are excited for today is healthcare outsourcing.
We invest in Medica, a healthcare technology company using digital communications and AI software to support healthcare professionals processing radiology results into diagnoses. The key long-term driver of demand for the business is the structural undersupply of radiologists relative to the increasing demand for image interpretation in the UK and globally.
Dirty transformations
Ben McEwen, climate active analyst at Sarasin & Partners
The most difficult part of the energy transition – and what underpins our ability to reach a 1.5°C pathway – is the need to transform high-carbon, hard-to-abate sectors. This requires engaged and supportive shareholders with the ability and willingness to challenge and reject unsustainable corporate strategies.
For example, building materials producer CRH is one of the largest carbon emitters on our buy list, but with an ambition to be sector-leading in carbon reduction. As the world adapts to climate change, we will need more cement. This must be low carbon. The opportunity for low-carbon businesses to thrive in hard-to-abate sectors is clear.
Satellite communication
YT Boon, portfolio manager and head of thematic Asia at Neuberger Berman
Demand for connectivity is increasing across the globe. Yet, despite the rapid expansion of terrestrial infrastructure over the past few decades, only 25% of the earth’s land mass is covered by cell signals. This is where satellite communication comes in.
Traditionally independent of mobile networks, the situation is quickly changing with advancements such as the new generation of Low Earth Orbit (LEO) satellites. Integration of LEO satellites with 5G networks is set to become a crucial supplement to terrestrial communications. Beyond just emergency situations, satellites built with 5G architecture will enable ubiquitous connectivity in moving cars, trains, planes and drones.
Care innovation
Debra Netschert, portfolio manager at Jennison Associates
Innovation is modernising the healthcare sector, as technology adoption is improving the patient experience, influencing lower costs. Advancements in the ability to diagnose, monitor, and treat diseases with personalized therapeutics is creating a broad set of investment opportunities.
Value-based care models are helping patients by shifting the liability to the provider of care, which is encouraging technology investments and driving better outcomes. We believe the current wave of innovation is presenting opportunities for select companies with access to data to demonstrate durable, outsized growth over the next decade – similar to what we observed in the tech sector from 2010-2020.
Capex boom
Ernest Yeung, portfolio manager of the T. Rowe Price Emerging Markets Discovery Equity strategy
We have heard phrases like ‘build back better’ and ‘levelling up’ as governments seek to recover after the pandemic. However, we have seen a chronic lack of investment at a top‑down level ever since the global financial crisis, despite an era of ultralow financing costs.
Looking forward, with the cost of everything going up, we believe the inflationary environment can be the catalyst to drive increased spending and awaken entrepreneurial spirits – at both a company and government level. With a new capex/investment cycle in the offing, we expect this to support earnings growth, particularly in areas like utilities and industrials.
Sustainable assets
Eric Pedersen, head of responsible investments at Nordea Asset Management
It is clear we must confront the challenges to our current way of life by adopting new approaches to reduce fossil fuel reliance and decrease energy use. Real assets companies are at the forefront of net-zero action, by investing in green initiatives such as the installation of solar farms, the upgrading of transmission lines, and the improving of building energy efficiency.
The investment opportunity in ensuring that existing infrastructure and real estate assets meet the evolving needs of society is set to be worth upwards of $130trn over the next three decades.
