The 2020s are nearly here. And if history is any indicator, what worked for investors in the past 10 years won’t be the best way to play the new decade.
Spectacular performances by tech companies like
(GOOGL), Google’s parent company, have been this decade’s leading stock-market trend. But such patterns seldom last from decade to decade. As Gavekal’s Louis-Vincent Gave noted in July, those who avoided the prevailing trend as each decade began would have come out on top every time since 1980.
So what should you buy instead? Mark Haefele, chief investment officer at UBS Global Wealth Management, has a few ideas.
Though he expects lower returns for equities in the 2020s, Haefele believes stocks will outperform other publicly traded asset classes. He recommends allocating money toward stocks that will benefit from longer-term growth trends.
“Large-cap technology stocks probably won’t repeat their performance of the last decade, but other parts of the market do have the potential to deliver above-average growth,” he wrote.
Haefele suggests stocks that focus on sustainable investing, genetic therapies, digital transformation, and alleviating water scarcity.
Consumers, governments and regulators will drive a shift toward sustainable investments and products in the next 10 years, according to Haefele. He cites comments from European Central Bank President Christine Lagarde, who has said she wants climate change to be a “mission critical” priority for the ECB. Italy’s Prime Minister Giuseppe Conte also recently suggested the government “strip out green projects funded with green bonds [from its] deficit calculation,” Haefele noted.
“If this trend leads to a green-focused fiscal and monetary stimulus package in Europe, the sustainable investing market is likely to be well supported,” Haefele added.
Haefele called genetic therapies “a paradigm shift in medicine, with the potential to revolutionize healthcare delivery and disrupt the biopharma industry.”
A new generation of gene and cell therapies are gaining regulatory approval as treatments for rare diseases and cancers, and large-cap pharmaceutical companies are watching, Haefele says. He noted that pharma and biotech companies have spent about $41 billion since 2017 to acquire gene and cell companies. He predicts more deal activity in the space.
“Of course, we recommend investing in this trend through a well-diversified portfolio of companies to manage the risks associated with clinical failure,” he wrote.
Haefele thinks 5G mobile phones, artificial intelligence, big data, and cloud computing will define the digital transformation of the coming decade.
He noted that 5G networks are being rolled out across the world, which will in turn contribute to the development of the Internet of Things. How this all interacts and develops will create investing opportunities in digital data, enabling technologies, e-commerce, fintech, health technology, and security and safety, according to Haefele.
Alleviating Water Scarcity
It is an unsettling suggestion, but Haefele believes there is a mismatch between supply and demand for water. It may be exacerbated in the next 10 years by demographic and climatic changes, he says.
“China and India represent 35% of the world’s population, yet have access to less than 10% of its freshwater resources,” he wrote. “Owing to the urgency and scale of water-related issues, and the need for capital spending in emerging markets, we expect continuous revenue and profit growth for the entire water value chain.”
He noted that China has already said it needs to increase its investment in water infrastructure to stave off shortages caused by pollution and population growth.
In Europe, he cited European Commission requirements for the reuse of treated wastewater in irrigation. Only a few member states are now compliant, meaning further investment will be needed, he wrote.
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