Three investment themes for 2023
It’s that time of year when everyone reaches for their crystal balls to predict what sectors could...
Stock markets are down. By all accounts, it’s a scary time – both personally and financially. Investors are holding on to their seats each time the market opens all over the world. The FTSE 100 is down 33%* since January and the S&P 500 is down by 20%*. But for those who want to think long-term and build an investment portfolio, could now be a good time to get into the market?
With the UK going into lockdown this morning (24 March 2020), some may advise that the stock market has not yet bottomed out, and this may be true – it could well fall further. But for those millennials who have never invested in stock markets before, the key point to remember is that a 33% discount on anything of value is a rare opportunity. So why wait, when you have time on your side to make your investment work for you over the next 10, 20, 30 – even 40 years?
‘Long-term investment success is almost totally a function of how one emotionally handles declines in the equity market, as opposed to how one’s portfolio handles them.’ — Nick Murray, financial services author
To be clear, I’m not suggesting you put all your life savings into equities right now. But having time and youth on your side is a tremendous advantage in times such as these. History has shown that, when fear is at its greatest, it can be an excellent time to invest for long-term thinkers.
Generations tend to have certain characteristics that define them in history. As millennials grew up, technology developed along with them, and will continue to do so, with virtual gaming and increased social media. Those looking to tap into this global development might like to consider Elite Rated Smith & Williamson Artificial Intelligence or AXA Framlington Global Technology as a potential route.
But investors could also consider more localised or ‘unconventional’ routes to this sector, for example Liontrust UK Micro-Cap fund, which has over 27%** in the technology sector. Co-manager Matthew Tonge recently told us about the ‘silicon roundabout’ in Cambridge, and the ‘tech canal’ in Birmingham.
Global funds are also a great way to gain exposure to the wider technology market, including Elite Radar Evenlode Global Income fund, which has a very long-term focus and currently 23.4%*** in technology. Elite Rated Fidelity Global Special Situations is a more established fund, with an excellent track record and 27%** in technology, including household names such as Microsoft, Apple and Adobe** all in its top ten. You could also take a more regional approach and consider Japan’s Silicon Valley, which Richard Kaye manager of Comgest Growth Japan recently told us about.
Millennials, climate change, ESG…. They all seem to go hand in hand. Decarbonisation is something that continues to come up, whether it’s the new Ultra Low Emission Zone in central London, or more and more companies focusing on their carbon footprints. The recently launched Investec Global Environment fund is a global fund with a unique approach of only investing in companies that are contributing to the decarbonisation of the world economy.
Watch our interview with co-manager Deirdre Cooper as she explains why accelerated investment is needed to keep global temperature rises below 2°C.
While sustainability and climate change often revolve around the impact of carbon dioxide and the need to decarbonise, other factors like biodiversity loss, deforestation and water scarcity are also big issues going forward. Investors concerned with broader environmental issues may like the Pictet Global Environment Opportunities fund. The managers have identified nine environmental challenges and all companies within the portfolio must actively contribute to solving environmental challenges. Manager Luciano Diana tells us more about the companies actively trying to solve the planet’s environment issues on our Investing on the go podcast.
Read more about water scarcity and how to invest for the future
Over the course of the next decade, it is forecasted that Asia-Pacific will be responsible for the overwhelming majority (90%) of the 2.4 billion new members of the middle class entering the global economy^. While the continent was the early epicenter of the Coronavirus, this is unlikely to have a long-term impact on its status as a growing global powerhouse. Since January, the IA Asia Pacific Excluding Japan sector has fallen 19%* (comparatively better than the IA UK All Companies sector, which fell a hefty 35%*).
Boutique fund Stewart Investors Asia Pacific Leaders is one option. Its managers reassured recently: “COVID-19 is the latest in a long line of shocks to hit Asian markets and economies. These are extraordinary times, but we have been here before. Who would have thought that three million South Koreans would queue up in 1997 to hand over $2bn worth of their own gold to the Government to help pay the national debt? The history of Asian markets is full of such extraordinary times. Fortunately, the resilience of good quality Asian companies, and in particular their emphasis on net cash balance sheets, should leave them well placed to weather this storm, just as they have done many times before.”
Additionally, now might be time to consider China. The Elite Rated Invesco China Equity fund is only down a remarkable 3%* since the beginning of the year. Fidelity China Special Situations Trust is another option for investors to gain exposure to China’s growth story. Manager Dale Nicholls believe that while many mainstream Asian equity funds look at Asia ex Japan today, very soon China will be so dominant they will look at Asia ex China instead.
Once the Coronavirus crisis passes, as it will, markets will begin their recovery, as counties work on rebuilding their economies. If more young people own equities by then, it could be a welcome silver lining in an otherwise sad period of daily and economic life.
*Source: FE Analytics, total returns in sterling from 31 December 2019 to 23 March 2020
**Source: Fund factsheet, 31 January 2020
***Source: Fund factsheet, 29 February 2020
^Source: World Economic Forum Annual Meeting, 20 December 2019