Against a backdrop of demographic shifts, geopolitical tension and climate risk, we select our fund picks to help your investment portfolio navigate the decade ahead
2020 Vision: Fund Picks for the Decade Ahead
Over a decade on from the global financial crisis, the current bull market is beginning to look long in the tooth.
The standout performer since the crisis has been US equities, which has ridden a wave of Federal Reserve risk targeting, quantitative easing and ultra-low interest rates. The combination of advances in technology and tax cuts have been advantageous to anyone exposed to the US, particularly the US tech giants where valuations have risen significantly over the period.
This post-crisis cocktail set the conditions for attempting to nurse the global economy back to health. The strong performance of equities indices, particularly the S&P500, have privileged a passive approach as active managers have struggled to outrun the market.
Looking ahead, we expect demographic shifts, geopolitics and climate risk to play an outsized role in defining the investment landscape for the next decade. As multi-managers, we need to be alive to a blend of active and passive solutions which can deliver returns over the long-term.
Against this backdrop, here are the top three key themes we believe will present opportunities for investors over the coming decade, and our fund picks for each.
Protectionism: here to stay
An important consequence of the financial crash of 2007/8 has been the deeper crisis of globalisation itself as an economic model.
Going forward, we expect increased protectionism and a fracturing of the global economy to remain a key feature of the 2020s, evidenced by the important questions that remain over the positioning of a post-Brexit Britain and a potential second term for the Trump Administration in November’s Presidential Election.
In this context, we believe a focus on domestic market ownership will be rewarded if there is an increase in controls over goods, capital and labour.
Funds to consider:
- Regional Small & Mid Cap funds such as Montanaro UK Income, Pictet Indian Equities, Legg Mason Japan Equity and Miton US Smaller Companies all stand to do well in a protectionist environment, providing portfolios with the geographic diversification needed to manage volatility
Managing the climate challenge
Managing the transition to a low-carbon economy will be the cornerstone of our political, social and economic lives for the foreseeable future, although investors will need to remain attentive to the fact that sustainable investing is by no means risk-free.
We believe a key priority from a policy perspective will be encouraging investment in battery and energy storage. The acceleration in electric vehicles (EVs), robotics and artificial intelligence (AI) will all be founded on improvements in power, with battery storage and energy efficiency businesses likely to be the beneficiaries.
At the same time, we need to acknowledge that commodities will remain integral in driving our economic response to climate change – many of the changes we are likely to see simply will not happen without a continued investment in key raw materials. To take the batteries example, manufacturers will continue to require lithium, cobalt, graphite and nickel as the building blocks to produce energy efficient battery solutions.
Funds to consider:
- The John Laing Environmental Assets Group Investment Trust offers investors access to less crowded areas of the environmental investment opportunity such as hydro-electric power, biomass combustion and batteries, where Managers Chris Tanner and Chris Holmes believe pricing pressure from other investors is less intense
- The L&G Battery Value-Chain UCITS ETF gives exposure predominantly to Japanese companies, tracking the performance of the Solactive Battery Value-Chain Index
- From a commodities perspective, consider Barings Global Resources or BlackRock Natural Resources Income & Growth, which offer diversified portfolios across different resource materials
While the daily news flow may often suggest otherwise, it’s important to recognise we are living through remarkably positive times across many key structural areas.
Consider, for example, the opportunities in healthcare, projected to reach 9.6% of GDP across OECD countries by 2030.
Outside of the US, which accounts for 44% of the global market, China continues to expand its national healthcare system. In Japan, social security spending on healthcare is estimated to rise to over 50% as the country comes to terms with the challenges of an ageing population.
Innovation will continue to play a big part in ensuring better healthcare provision at lower costs. The combination of technological advancement in this sector and changing demographics, mean healthcare has both defensive qualities and growth prospects.
Funds to consider:
- The iShares S&P 500 Healthcare Sector ETF tracks the US health sector and uses a physically backed replication method
- The Polar Capital Healthcare Opportunities fund is long-established with a proven track record of risk-adjusted returns, helped by structural drivers such as ageing populations, clinical and technological advances and developing market expansion
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.