Global Asset Tracker: Impact of technology key long-term play for wealth firms
More than 70 per cent of responders to PWM's Global Asset Allocation survey implement cross-sector investment themes, with interest in robotics and AI particularly high
Rising geopolitical tensions in the Middle East and on the Korean peninsula, fractious Brexit negotiations, elections in France and Germany, and President Trump’s highly controversial unilateralism did not affect the growth trajectory of the global economy, and financial markets have continued to demonstrate their resilience to geopolitical risks last year.
Further reading
While last January, in the aftermath of the US elections, Mr Trump’s presidency was viewed as the top risk for financial markets, this year it has been dismissed as the most irrelevant (see Fig 4 on p21). Stockmarkets soared under Trump’s first year as president, driven by growth of the underlying economy, and the recently introduced tax cuts programme is viewed as a positive development for corporates and financial markets.
“Geopolitical risk may play a bigger role in 2018 than in 2017,” ventures Didier Duret, CIO at ABN Amro Private Banking. “In the Middle East and Africa region, it can propel oil prices to a new range and make central banks sanguine. This will drive an appreciation of the US dollar, impacting all risk-on trades, in particular emerging markets,” he explains.
In addition to diversification, for investors who are already significantly exposed to equities, an effective way to manage volatility is to invest in cross-sector investment trends, which play out over the long term. “Long-term investments that benefit from evolving secular trends remain important drivers of portfolio returns,” says Markus Mueller, global head, chief investment office at Deutsche Bank.
The longer the investment in equities, the smaller the risk of loss. “If you were not invested on the best 10 trading days during the past 20 years, you would have missed out on roughly 50 per cent of performance.”
More than 70 per cent of the banks participating in PWM’s GAT survey 2018 implement long term investment themes in their clients’ portfolios (see chart). Automation, robotics and digitisation themes are the most popular, as they are believed to resonate strongly with private investors.
Investors’ interest in tech themes is very high, because people feel the impact of technological development in their daily lives
“Investors’ interest in tech themes is very high, because people feel the impact of technological development in their daily lives,” says Mr Mueller. Deutsche, which last year introduced investment themes focused on infrastructure, cyber security, global ageing and millennials, has this year added smart mobility and AI.
Smart mobility is focused on multiple implications of self-driving cars and other technological transport advances. While cities such as Dubai and Singapore are already testing flying drone taxi service and self-driving cars, there will be implications for car makers, batteries, powertrains and the whole charging infrastructure.
The quest to “intelligently” automate repetitive tasks, anticipate human action/preferences, and problem solving in a disciplined manner will attract more investment to the AI theme, according to Deutsche Bank.
One long-term itheme favoured by Citi Private Bank over the past three years is “transforming commerce”, focusing on innovators in subsectors such as healthcare and retail, where digital technology will enable firms to achieve “strong top line revenue growth through the cycle”.
But investing in individual early-stage disruptors is a volatile, risky business, warns Citi. Of 35 public firms Citi Research now classifies as ‘world champions’, nine have suffered share price declines of 80 per cent or more during their existence.
“The theme of transforming commerce is showing good performance, regardless of the economic cycle,” says Jeffrey Sachs, Emea investment strategist at Citi Private Bank.
Education is also a theme to watch. “Nelson Mandela called education the ‘most powerful weapon’ to change the world, hence its place among the UN's Sustainable Development Goals,” reports Alan Mudie, global head of research and investment strategy at Société Générale Private Banking. In emerging and developing economies, education spending will have to triple by 2030, requiring support from private players, including schools, colleges, publishers and educational technology providers.
Energy efficiency is the investment theme that has most potential for growth. “Innovation and improvements in technology are making alternative energy sources increasingly competitive and renewables represent an ever-larger proportion of new power-generation investment and of the installed base,” says Mr Mudie.
