Five investment themes for 2019 and beyond

2019 has been an interesting year so far. Global stock markets started January in the doldrums, only to rally once again. We’ve yo-yoed between had trade wars and truce, and we have a new British Prime Minister.

So we thought we’d take a closer look at events so far this year and see how long they could continue to impact stock markets.

1. Brexit

We have a new prime minister, a new pro-Brexit cabinet, but still no idea as to whether or not we might reach an agreement with the European Union before the deadline of 31 October. Brexit has been dragging on for more than three years now and the uncertainty is taking its toll on our currency, UK business and the UK stock market – few investors want to own our shares and there is a danger the economy is now slipping into recession.

As we await an outcome, it’s hard to know what to do. A hard Brexit could send the pound plummeting further, which would give an artificial boost to the big UK dollar earners, but could hit domestic companies badly. Any good news could see an unloved stock market rally strongly.

So a mix of different types of business seems sensible. Funds like Liontrust Special Situations, Investec UK Alpha and Jupiter UK Special Situations are all worth considering as they all invest in companies of different shapes and sizes.

2. Trade wars

Much of President Trump’s time this year has been spent baiting the Chinese about trade wars. And every time he imposes trade tariffs, global growth outlook and stock markets fall. Then every time he backs off, stock markets rally.

The longer the tit for tat goes on, the more of a toll it will take on global growth – not just that of China, Mexico and the US. Then there are also fears that Trump could turn his attention to Europe… Meanwhile, the UK will be trying to broker trade agreements with all these countries and more besides. Trade, as we know it, is probably changing, and it could take years to sort out properly.

In this environment, global diversity will be key. There are no winners in a trade war, but some countries, sectors and companies will cope better than others. Lazard Global Equity Franchise, T. Rowe Price Global Focused Growth Equity and ASI Global Smaller Companies are invested in business across the entire globe.

3. Interest rates

According to Goldman Sachs Asset Management, not a single central bank around the world is currently raising interest rates – they are all either keeping them on hold or cutting them. Why? Because global growth is slowing and they are worried that it might slow so much that we have a global recession.

So as soon as there are signs of trouble, central banks are stepping in to try to keep their economies going. While this might seem like a nice ‘comfort blanket’, what it means is that a) badly run companies keep on going and b) interest rates are so low that bond yields are too – even negative in many cases meaning we are paying for the privilege of loaning our money to governments and corporations. Madness.

But there are no signs of this pattern of behaviour changing. And also little sign of interest rates returning to ‘normal’ even perhaps for another decade. So the hunt for income producing investments continues. City of London Investment Trust has a very good track record in terms of raising its income payments. For those looking for more diversification, Guinness Asian Equity Income is worth a look or Artemis Monthly Distribution.

4. Sustainability

Momentum behind climate change concerns and sustainability has really grown in the past couple of years. Here in the UK, we’ve had the issues described to us both eloquently and visually by David Attenborough in his Blue Planet series, and Hugh Fearnley-Whittingstall and Anita Rani in the BBC’s War on Plastics.

Globally, governments (Trump’s administration aside), companies and individuals are waking up to the pressing issues and finally starting to do something about them. Sustainable investments are also gaining momentum with investors.

Our planet has given us deadlines, so while we are very much at the beginning of our journey in making the necessary changes, the clock is ticking. Companies that are at the forefront of the problem solving could do very well. Newly rated Pictet Global Environmental Opportunities is worth a look, as is Edentree Amity UK and Rathbone Global Sustainability.

5. Technology

Finally, there is technology. The sector has been leading the charge in terms of stock market gains for a couple of years now and many people believe that the amount of disruption being caused by technology today actually amounts to our fourth industrial revolution.

Technology touches every single area of our lives, so has the ability and potential to touch every sector of business. A couple of years ago there was no Alexa – in the future, it has been joked, she could be cited in divorce cases. Artificial Intelligence is now being used to scan data to help with targeted medication, robotics are helping an ageing Japanese population work on building sites for longer, Facebook is launching Libra, its own digital currency…

What technology and our world will look like in five years, let alone 25 years, is anyone’s guess, but being invested in the disrupters will surely pay handsomely. Baillie Gifford Global Discovery, Smith & Williamson Artificial Intelligence and AXA Framlington Japan are all embracing these themes.