There’s so much happening in markets at the moment. It’s easy to be distracted, get caught in the daily news cycle and lose sight of the big important themes, where large amounts of wealth can be generated. We live in a world where the accumulation of information can overload our brains and cause us to give up investing on long term thematics. It’s very tempting to try to pick individual stocks, but it notoriously difficult – and I see investors throwing in the towel regularly, particularly in recent months.
If your investment timeframe is long-term, it’s important to ignore the short-term noise. Thematic investment has gained popularity amongst professional investors over the past few decades. At my firm, Invast, we have decided to specialise in facilitating this style of investing for our private clients.
At the end of the day, we believe private investors are instinctively good at recognising and understanding big themes, but not particularly good at in-depth research of individual stocks (mainly because of time constraints and lack of access to timely information). So we specialise in researching stocks that are sensitive to big themes (thematic research) and we build portfolios associated with these themes.
Here are six themes that I’m watching very closely. They get almost no attention in the daily business news cycle but could be of paramount importance to your investment returns and daily life in five, 10 or 20 years from now.
Driverless cars – Invast has been talking to clients about the looming commercialisation of self-driving cars for over a year now. Each day, the prospect becomes more and more likely. The key players in this area are obviously the large auto makers, but also technology businesses like Apple, Garmin and Google. Mapping is important. There are a host of listed companies across the globe providing small pieces of the technology puzzle. That’s where the real opportunities are.
Clean energy – With the Paris Accord announcement last year, we have seen a significant shift amongst global governments toward overtly promoting clean technology. Businesses will begin responding to government policy and entrepreneurs will bridge the gap. Clean technology is no longer just about economics but about consumer preference. Clean energy is a major theme about to unfold over the next decade. Specific listed companies are poised to be the big winners.
Saudi Arabia – The country is obviously massively leveraged to oil prices. The Saudi government is trying to juggle the falling oil price, a widening budget deficit at 12% of GDP and high youth unemployment. We could be hearing and reading more about the Saudi economic problem towards the end of this year. While this is predominantly a macro theme, rest assured there are quite obvious ramifications for various well-known stocks.
Rising Japan – One of the things missed by most market commentators is that Japan is now undergoing a period of political stability, one not seen for more than a decade. Despite the economic impact in the short term, Abe is still very popular. The economy is yet to breakout of its deep slumber, but sentiment is very important and cannot be completely discarded. Watch the rebound in Japanese stocks very closely. We could be at the beginning of a generational shift, which Australian investors are easily able to benefit from.
Cyber security – Our personal, business and government information is all online and the need to protect that is becoming increasingly important. As corporations and governments around the world push towards online efficiencies, they will also undoubtedly grow their investment in cyber security resources. This is a not a cyclical bubble – this is a big picture trend. It’s the sort of opportunity that, in ten years’ time, most investors will regret not having followed their instincts.
World disease – The recent Zika virus scare highlights the challenges of global health security. With the proliferation of antibiotic medicines in western countries, it’s only a matter of time before the next superbug or disease turns into pandemic. There will be economic winners and losers, including the unfortunate and tragic loss of life. A portfolio of pharmaceutical and related stocks is an astute way for investors to apply a portion of their investable wealth toward this obvious modern yet unfortunate, probability.
While many are watching the daily market gyrations, fretting over individual stock movements – my research team and I are studying the big picture themes. We then debate them at our regular Investment Committee meetings and build thematic portfolios around them. The thematic portfolios we construct are made up of stock exposures across the world, which Invast clients can trade at the click of a button on our online trading platform. It’s different. It’s new technology. We think private investors allocating capital across diversified long term thematic portfolios is a long term trend itself. It’s the big picture.
Peter Esho, chief market analyst
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.