‘We overstate the change that will happen in the next two years while underestimating the change in the next ten,’ Bill Gates appropriately summarized the year 2020 from the investor’s perspective. As a result of the recent socio-economical pandemic disruption, investor worry has spread over the globe. As a result, markets began to collapse in March, only to see numerous indices climb dramatically in the summer, primarily in the United States.
Firms’ share prices are substantially different from how they were at the start of the year behind the headline index figures. In the short run, disruption and volatility are bad for the economy, as businesses fail and individuals lose their jobs and income. However, in the long run, this disruption may catalyze change, assisting in improving economic circumstances and living standards. Many poorly operated firms or in failing sectors have exited the market as a result of the pandemic outbreak. Better-run businesses may gain market share and increase profits over time, while shifts in customer behavior and preferences generate new possibilities. Five themes emerged this spring that might have a significant impact over the next ten years.
Technology stocks have been a significant component of the market for the past ten years, but the trend appears to be multi-decade. A single tech stock doesn’t drive this opportunity; instead, it’s a combination of many. Cloud computing, for example, accounts for around 30% of a $7 trillion business, and similar software will progressively appear in future computer products. Scale is vital, and breaking into the market is complex, with Amazon, Microsoft, and Alphabet leading the pack. Companies and investors may benefit from AI and machine learning as well. This industry is at the heart of the advertising ecosystem and our social and economic interactions. It’s also essential for big ideas like self-driving cars. T.Rowe Price Global Technology is one of the funds that is taking advantage of this expanding trend. Alan Tu, a San Francisco-based manager, has examined firms throughout their life cycles, frequently getting to them before they go public.
For the past two decades, the healthcare sector has struggled to develop new blockbuster treatments, particularly pharmaceutical companies. However, given the current conditions, the necessity for, value, and relevance of having speedy and successful therapies have never been more apparent. As IT and data analytics enhance therapeutic productivity and enable more tailored treatment, there is the potential for substantial advances in medication discovery. China is becoming a more important market for medication development. It has a vast number of cancer patients, and one out of every two of them is enrolled in a medication study, compared to one out of every 20 in the United States. Through applications and monitoring technologies, a massive quantity of data is collected. Fitbit and other wearable gadgets frequently link with other health applications to provide your statistics. ASI Global Smaller Companies is overweight healthcare and is a fund to take advantage of this rising subject. Manager Harry Nimmo is interested in transformation and seeks out businesses that provide the most delicate balance of growth, quality, and trade at reasonable prices.
Throughout the coming decade, ethical and sustainable investment is anticipated to be a significant subject. From wildfires to a pandemic, this year has witnessed a wide range of concerns. These financial crises have shown how environmental variables may affect markets, economies, and people’s wealth. Governments in the United Kingdom and the European Union are committed to utilizing budgetary responses to the coronavirus to invest in environmental and green recovery. Companies have begun to see the value of ESG principles in their operations, and the argument for them has only gotten more robust this year. All who implement them have more sustainable enterprises that are better positioned to weather any storms. Shareholder returns are anticipated to benefit from a stronger focus on the long term, solid corporate financials, and environmental effects. Royal London Sustainable Leaders, managed by Mike Fox, is one fund taking advantage of this increasing trend. The fund invests in businesses that benefit the environment, human welfare, and overall quality of life. ASI UK Ethical Equity follows a solid ethical code as well. Animal testing, genetic engineering, alcohol, gambling, cigarettes, and other activities are excluded by manager Lesley Duncan.
The largest corporations’ market share is increasing. In areas such as online advertising, a few vast businesses dominate sectors. Scale benefits, which were formerly localized, have now gone worldwide, even though many of these are fixed-cost enterprises. This means that while the marginal cost of acquiring a new client for an existing organization is nearly nil, it may cost billions for a new player. The data feedback loop also aids in the reinforcement of the business model and improves services, giving established firms a substantial edge. Fund Smith Global Equity and Lindsell Train UK Equity, both investing in global leaders, are two funds to consider. They invest in firms with the potential for long-term compound growth, and they have a similar investing strategy. The emphasis is on high-quality firms that Terry Smith and Nick Train feel will last for decades.
Quantitative easing has been injected into the system in massive amounts, significantly beyond the support provided during the Global Financial Crisis. Inflation did not materialize in 2008, and while there are no guarantees it will this time, the circumstances are substantially different. This time, the money transmission system isn’t malfunctioning; therefore, any QE has reached the markets. Furthermore, unlike in 2009, governments have recognized the necessity to engage in fiscal stimulus to stimulate economic activity and development. This should aid in the development of jobs and, as a result, inflation. M&G Global Macro Bond, managed by Jim Leviss, is a go-anywhere fund that can take advantage of this rising trend. Leviss can integrate his view on the global economy and market with bond selection. He should be able to position this bond for inflation at the right moment because it can go anywhere. Richard Colwell, the manager of Threadneedle UK Equity Income, has shown to be a safe pair of hands, focusing on firms with stable cash flow and investing in growth and recovery stocks.
