A thought-provoking look at some of the evolving big investment themes of the future. Lazards share some of their thinking.
Expert: Steve Wreford, Managing Director, Portfolio Manager Lazard Global Thematic Equity
State of play
- Global framework
- Important convergence of technologies
- Computing power
- Data Science
- Artificial intelligence
- Important convergence of technologies
The market has generally acknowledged this convergence
- Global and National political tensions are rising threatening the profitability of global companies as headwinds to globalization increase
- There is increased pressure on companies and the private sector to solve societal issues. This creates both risks and opportunities for investors.
- Although we are in a disinflationary world, there are growing signs that this may not continue.
- The key drivers for the Lazard framework are:
- Monetary policy
Further consideration in building the Global framework:
- Disruption is non-linear
- Technology, geopolitics, sustainability and monetary policy all interact with each other.
- Government policy is reactionary – we cannot hold it as constant.
- Theme 1 – Asset efficiency
- With technology advances, the factories and warehouses of the future will have far more machines interacting with each other than people manning them.
- This will enable jobs to return to “home” locations all the while saving the energy that previously was needed to ship product to their end user markets.
- Theme 2 – Bits of chips
- With the increased political tension in the world, there will be opportunities for items such as computer chips which will no longer be made in places like China.
- Having these chips built locally also saves transport energy and addresses military security concerns as well.
- Theme 3 – Empowered Consumer
- Before consumers who did not like your product would not buy it or buy it again. Now if the consumer does not like the product, the consumer will go online and tell everyone not to buy it and fundamentally change the company.
- Consumers are looking for brands that are in line with their values/ethics and tailored to their needs.
- They also want a digital relationship with their vendor.
- Theme 4 – Software as a standard
- There are too many now and not all will survive.
- Which ones will become the standards – these will be the winners.
- These are the companies that will replace white collar jobs with software.
- Theme 5 – Digital runway
- These target emerging markets and the financial sector.
- The emerging markets are very well government supported and have fantastic local fintech. These markets support their local fintech champions in order to fend off the likes of China.
- These stocks are trading very cheaply
- Theme 6 – Data, Networks & profits
- The roadmap that takes us from data to artificial intelligence and its application of AI to make lives easier and things cheaper.
- Regulation in this area will be huge over the next decade.
- B to B companies will thrive since the data is less governed.
- Already many of these themes are showing evidence of being the future. One must, however, remain humble in that many times, change comes from unexpected quarters and accelerates issues in motion. Disruption is never linear. The Pandemic is an excellent example of a disrupter that has accelerated technological change from two years into two months
- When constructing portfolios, do you only focus on small cap disrupters or do you balance with old standards and established companies? It really is a case of no right answers but more of risk appetite
- Reverse globalization seems to be something to be something to be more and more on the horizon as more tit for tat regulation is introduced. Companies seem to be investing less and less in China and more in friendlier countries or back at home. Another big issue here is global tax arbitrage and the pushback from governments that could drive businesses back home
- Has Trump been successful bringing money back to the US? Just enough to avoid the next tweet unless it made economic sense. Social Media on the other hand, has been effective in driving some business home. No company wants to be labelled as “un American”. This behaviour will not change with a change of government
- Sustainability is a long-term theme, but climate and inequality are the two main concerns. Stimulus packages will all have a large green component and is an area to follow.