In our previous two articles on thematic investing, we looked at the basics of this unique investment strategy and highlighted some of the key advantages that this approach to portfolio management offers over traditional benchmark-based forms of investing.
In this article, we will be exploring a number of key themes that we believe offer compelling investment potential going forward.
Here are our five top investment themes for 2019.
The World’s Ageing Population
The world’s ageing population is a colossal theme that is impossible to ignore. Across the world, life expectancy at birth has increased by almost 20 years over the last half century, and it’s estimated that by 2050, there will be over two billion people aged 60 or older globally – more than twice the number of people of this age in 2000.
In the UK, the Office for National Statistics expects over-65s to account for approximately 26% of the total UK population by 2066, up from 18% in 2016.Figure 1. The world’s ageing population
Naturally, this increase in the age of the global population is likely to have a number of implications and create a broad range of investment opportunities. One industry, in particular, that looks set to benefit is healthcare.
As people age, their demand for healthcare-related products and services increases. For example, in the US, healthcare spending on the elderly is around triple that spent on the general working-age population.
Therefore, it’s likely that the world’s ageing population will provide powerful tailwinds to the healthcare industry in the years ahead.
From pharmaceutical products and diagnostics tools to healthcare properties, there are many ways that investors can potentially profit from this theme.
Disruptive technology refers to new technology that has the potential to alter the way businesses or industries operate.
Over the last ten years, advances in technology have had a dramatic impact on the world and changed the way we live. Yet with the pace of technological innovation increasing at an exponential rate, the next ten years has the potential to be the greatest technological revolution in history. For astute investors, disruptive technology is likely to present a wealth of exciting investment opportunities.
One specific area of disruptive technology that we believe offers immense potential is artificial intelligence (AI).
Artificial intelligence is an area of computer science that aims to create intelligent machines that can teach themselves, and can think and function in a similar way to humans.
In recent years, advances in machine-learning technology have enabled computers to complete sophisticated tasks that only a decade ago, would have been unimaginable. Yet, this could just be the beginning. Over the next decade, AI could potentially transform almost every industry.
We believe that now is the time to be taking a closer look at companies that are developing AI technology.
Another niche area of technology that we believe offers vast potential is that of robotics – the design and operation of robots.
Robotics is not a new industry, as robots have been used to complete repetitive tasks within the manufacturing industry for decades now. However, technological advances in recent years have given rise to a new generation of more intelligent robots, and use of these robots is gaining traction across a broad range of industries including healthcare, retail and hospitality.
Today, robots can sense the environment that they are in, interact and work with humans, and perform sophisticated tasks. For example, companies such as Amazon and Ocado now use thousands of robots in their warehouses to pack goods efficiently. Robots are now also being used in the healthcare industry to perform surgery, and in the retail industry to assist shoppers. According to PricewaterhouseCoopers, by 2030, up to a third of British jobs could be done by robots.
With robotics technology likely to continue advancing in the years ahead, we believe the sector is an attractive space for investors.
Linked closely to both the disruptive technology theme and the robotics theme is the more under-the-radar theme of materials.
Demand for lightweight materials across the automotive, aerospace, energy and construction industries has increased significantly in recent years due to advances in technology as well as environmental concerns and government regulations.
For example, rising awareness about fuel emissions has led to vehicle manufacturers turning to lightweight materials to reduce the weight of vehicles. Looking ahead, we believe that demand for advanced materials such as graphene, aluminium, advanced high-strength steel, titanium and magnesium should remain robust in the medium to long-term and could present excellent investment opportunities.
Metals associated with battery technology, such as cobalt and lithium, are another key area to watch, in our view. With the number of electric vehicles on our roads likely to increase significantly in the years ahead, demand for these metals should generate a number of investment opportunities.
Lastly, we continue to see enormous investment potential within the smaller company space, and this is a theme that is linked to all of the themes discussed already.
Smaller companies, in general, tend to offer greater potential for capital growth than larger, well-established companies simply because they are at an earlier stage of the business life cycle, are more innovative, and are growing at a faster rate.
Indeed, many studies have shown that in the past, the strongest long-term stock market returns have actually come from smaller companies and that small-cap stocks have consistently outperformed large-cap stocks over the long run.
Figure 2. Smaller companies vs larger companies
While the UK is home to a large number of disruptive smaller companies that have huge growth potential, there are many other regions across the world that offer investors growth opportunities in the small-cap space.
It’s worth noting that many larger investment managers are unable to invest in smaller companies due to size and liquidity restrictions, which is why many of them fail to outperform the market. As a smaller, boutique investment manager, we have a competitive advantage in this regard due to our size, and have the flexibility to invest in early-stage companies and benefit from their growth.
Smaller companies have generated excellent returns for investors in recent years, however, with technology continuing to advance, we believe that smaller companies will continue to generate strong performances in the years ahead.
At Featherstone Partners, we are aiming to capitalise on the five investment themes listed above by providing our clients with access to high-quality, niche investment funds that few private clients typically have access to.
We believe that a portfolio consisting of various specialist fund managers based around the world, and focused on specific themes, is likely to outperform the generalist approach to wealth management which is often observed within the investment management industry.
Our clients enjoy the qualities of a smaller, friendlier firm, while benefiting from our team’s experience working at firms such as Goldman Sachs, JP Morgan, UBS, Odey and Deloitte. Aligning our interests with those of our clients, we invest alongside our clients, and our founders, staff, families and friends are among our largest (and smallest) investors.