When something like this happens, it can be difficult to see much further ahead. But look ahead we must, and to do so, we must look ahead many years, as the pace of change will be so startling it will be breath-taking. Let’s start by taking a look at five investment trends that will be hard to ignore for the next ten years.
Technological innovation has already started separating the “winners” from the “losers” in the asset management industry. For example, the use of artificial intelligence (AI) holds the promise of helping firms identify complex patterns and trends, potentially improving investment strategies. Automation can help drive accuracy and speed across many functions – including valuations, trading and reporting – while reducing execution costs.
To give an idea of the scale of technological progress, it is predicted that by 2030 the escape velocity of life longevity will have been achieved. That means an increasing life expectancy making it possible to live forever. There are increasing consequences of finding new ways to manage wealth for a longer term of life; and taking advantage of the associated technologies that allow this to happen. Potentially, wealth inequality may morph into life longevity inequality – a profound global social problem that could widen in the future.
This is undoubtedly the first pandemic where biotechnology firms are leading the way in searching for a mitigating treatment, cure or vaccine. This will only continue and with the leaps ahead now being seen in the areas of gene editing (at birth, and soon before) our lives will be significantly better and longer as we progress through the coming decade.
The main benefits of automation are that it creates more opportunities in every industry, improves operations, and effectively reduces cost. Also, the adoption of AI, which enables quick analysis, benefits healthcare advancement in undertaking streamlined operations.
Pharmaceuticals are vitally important in the healthcare system of every country. But the cases of pharmaceutical counterfeits have been increasing year-on-year globally. The World Health Organisation (WHO) estimated 116 000 deaths occurred due to pharmaceutical counterfeits in Sub-Saharan Africa. However, the existing old healthcare infrastructure and data privacy concerns are a few restricting factor implementations of these systems.
Renewables and the issue of climate change will be the battle of the decade and while we all want to do something about this, at scale, replacement projects need to make commercial sense to propagate naturally and at the speed which has been reached for wind and solar energy. The cost of constructing and running wind or solar plants is now less than running an existing coal-fired plant, with no subsidies. This is progressive and is due to the exponential fall in the cost of solar and wind technology over the past decade, as demand has increased and technologies have improved.
Consequently, large commercial offshore wind projects are underway in major markets. With complexity in portfolios comes the need for intelligent renewable asset management. No doubt, offshore wind projects are a decisive step towards a green-dominant energy mix. Optimised supply chains, high capex, improved efficiencies, and offshore workers’ skill sets are the top ones. Therefore, if wind farm asset managers have the right tools, any challenges can be dealt with better.
This is perhaps the most contentious trend for the decade and currently tough to invest in, given the only direct quoted company is Richard Branson’s Virgin Galactic, valued at US$3.3bn. Currently only designed for space tourists wanting to experience weightlessness at the outer edge of the solar system, Virgin is dwarfed by Elon Musk’s SpaceX, privately held, but currently valued at over US$30bn. Thanks to the successful implementation of reusable technology, the cost of getting astronauts and cargo into space has plummeted (the cost per astronaut on SpaceX is less than 5% of that of the Space Shuttle just ten years ago).
We have not experienced uncontrolled inflation for 40 years, but several market indicators point towards increased investor awareness of potential inflation. Analysing the performance of asset classes that have historically been thought of as inflation hedges in different inflation regimes, one can see that there isn’t a single asset class that performs best in each environment, or a one-size-fits-all solution.
In times of declining inflation, historically, this environment has been kind to fixed income, especially for longer-dated bonds. While broad commodities have performed poorly in deflationary periods, a deflationary environment is symptomatic of constrained economic growth, dovish central banks and a low carry environment, which benefits gold.
Moderate to slightly rising inflation is typically seen as a sign of positive economic growth, especially when inflation is realised in line with, or close to, market expectations. Accordingly, traditional asset classes (such as equities and bonds and even REITs) have historically performed well, as price stability boosts confidence that businesses will be able to pass along higher costs.
Ultimately, these five trends for the decade are about investment value and, while sub-trends in each area will inevitably change, I believe that investing in exchange-traded funds (ETFs), that currently capture the underlying shifts in each area and offer underlying diversification, will prove profitable. BM
This article was written by Hywel George, Director of Investments, Old Mutual Investment Group
Female-named hurricanes kill more people on average than male hurricanes. This is due to people not being as intimidated by the former as the latter.
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