One way investors can structure their portfolios is around ‘supertrends’ – long term themes that capture the major societal shifts underway, according to Andrew McAuley, Chief Investment Officer for Credit Suisse Private Banking Australia. The idea is that businesses involved in these shifts have a vast runway for growth as demand is expected to span decades. McAuley says there are five supertrends in particular to note: 1) Angry Societies – a western middle class disenchanted with globalisation; 2) Infrastructure – the need for more roads and airports globally; 3) Technology – the rise of automation and AI in boosting productivity; 4) Silver Economy – the growing population of older adults requiring healthcare and also leisure services and 5) Millennials – who are tech savvy and care about sustainability and life experiences. In this video, Andrew discusses more on these themes and how investors can play them.
Angry societies refers to the multi polar world. The western middle class is disenchanted with globalisation. Much of the disenchantment is driven by lack of real wages growth. This is affecting Australia too, with real wages growth close to flat for some time, and yet the cost of necessities remains high. Per person income growth in the USA is the weakest for decades.
USA % change in real disposable income per capita from a decade earlier – a negative trend
Source: FRED Economic Database, Credit Suisse
The developed world middle class is under pressure. On our estimates the middle class is a minority in the US. This has given rise to populism – an example of which is President Trump’s USA first tariff policies and Brexit. Companies set to do well in this environment are domestic manufacturers and brands, also security and defence. We expect cyber security companies to perform well in the next decade.
Infrastructure needs to be built in developed and developing nations. It improves productivity, competitiveness and the standard of living. There is a funding gap between developed and emerging markets which needs to be filled. An example is the Chinese one road, one belt plan. Investment markets are also driving demand for infrastructure investment as bond yields are low, making the steady cash flows from infrastructure very attractive. Beneficiaries are companies owning and building the infrastructure such as pipelines, roads and airports. Renewable energy infrastructure is also attracting massive investment.
In terms of technology at the service of humans, innovation and application development is endless. Growth in digital data usage is massive. 5G will enable more intensive use of data for artificial intelligence, virtual reality, and digital health and the use of technology to deliver financial services. Robots will become more common as processes are automated.
Key beneficiaries will be internet platforms, cloud computing, robot manufacturers, enterprise software and bio tech utilising big data to develop targeted drugs.
The global population is ageing. This brings us to our next supertrend the silver economy. The percentage of the world population over 65 has been increasing since the war.
Percentage of world population 65+ (1950-2050)
Source: United Nations, Department of Economic and Social Affairs, Population Division (2017)
Lower fertility rates are an outcome of affluence. With lower household formation, developed economies are experiencing an underlying falling tide of activity. For example in Japan deaths outnumber births and immigration does not feature. The central bank and government are undertaking a revolving door of stimulus measures that don’t appear to be having any long term impact. The elderly consume a disproportionate amount of healthcare resources. They also have more time to travel. Key beneficiaries are bio tech companies targeting age related disease, such as arthritis, heart, and diabetes. Companies involved in leisure and tourism should also benefit.
The final Supertrend is millenials’ values. 50% of the world’s population is below 35 and most of them are in emerging markets. They are digital, tech savvy, mobile, and want convenience and quick gratification. They are also concerned about the environment, as well as social and governance issues. They will favour investments in sustainable businesses, clean energy, technology brands, smart mobility, education technology and fun and health.
The Supertrends are not set in stone and will change over time as society changes and technological innovation evolves. But rather than react to change one can enhance the return on a portfolio by taking a proactive approach to identifying important future investment themes.
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