Secular investing looks ahead – beyond just the next few years – to investigate the themes and directions that will shape the future world. In the flurry of day-to-day market turbulence it is often easy to get side tracked by short-term noise and lose sight of what is important in the long game. In this article, we explore three key themes which may provide exciting investment opportunities in the future.
1. Education
With the future likely to be more dependent on an increase and improvement in technology and new concepts, education is likely to be a key growth area. This will apply not only to school student and university graduates but also to the working population who will be required to keep their skills up-to-date or acquire new skills on an ongoing basis. The increase in educational requirements will not just apply to content but also in the delivery mechanism. To some extent, the internet has negated the need for a centralised education system and has allowed a more flexible structure in terms of physical location as well as timing. These delivery methods are still in their infancy and it is expected that new methods of delivery will be an important step forward.
2. The energy revolution
A growing global population, coupled with an insatiable demand for energy, will mean that new sources of energy will be a major growth area. Although companies specialising in alternative energy production currently account for only around 0.1% of global market capitalisation, this is expected to undergo a sea change in the coming years as the world shifts to a low-carbon economy. In addition, 80% of energy is lost somewhere along the value-chain so there is a vast opportunity for efficiency improvement. Increased battery technology is also likely to play a key role in supporting the new technology.
3. Ageing demographics
The world is getting older. Falling birth rates and improvements in health care have meant we are all living longer. Looking forward, this has implications for the pharmaceutical, medical and health care industries, especially where this can add to the quality of life and not just the nominal age at which we die. The increase in lifespan is also starting to have an effect on the structure of the investment industry, with a greater number of older individual investors looking for a stable stream of income. This has potential implications for company growth prospects as higher risk / higher reward strategies are replaced by ‘safer’ options. This could potentially inhibit growth and innovation if companies avoid risk in favour of perceived stability. Longevity risk will also come into play as people retire from the workforce.
We also believe that the impact of obesity, technological change and urbanisation will play an important role over the coming years.
How does secular investing differ from traditional approaches?
Today, many diversified funds are centred around benchmarks, which represent a group of securities that are constructed to represent a particular sub-set (sector, asset class or geography) of the investible universe. A fund’s performance is often judged against these benchmarks. Although there is utility in having such benchmarks – they provide a focus and allow for objective comparisons – they may not be appropriate for all investors. Secular investing offers an alternative approach. It aims to identify companies that are exposed to themes which offer solutions to the challenges of a rapidly transforming world.
Final thoughts
For those investors who are prepared to take the long-term view and who want to be suitably placed in the next 10, 20 or even 30 years, it’s important to see through the short-term mist; paying less attention to short-term ups and downs in order to capitalise on emerging investment themes and opportunities.
About the Author
Andy joined AMP Capital in February 2012 as a Portfolio Manager/Analyst within the Fundamental Equities team, and has more than 12 years’ investment experience in Europe and Asia Pacific as a senior buy and sell side equity analyst and strategist. Andy holds a Bachelor of Science in Economics (first class honours) from Kings College London, and is a CFA charterholder.
Important note: While every care has been taken in the preparation of this information, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This information has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. Certain information in this website has been obtained from sources that we consider to be reliable and is based on present circumstances, market conditions and beliefs. We have not independently verified this information and cannot assure you that it is accurate or complete.
