Although Australia has a bustling economy, we sometimes forget it represents just two per cent of the global economy. This presents Australian investors with a challenge and an opportunity to identify and gain exposure to some of the largest structural global megatrends.
Why consider megatrends when investing in stocks? Structural trends can provide a sustained tailwind to the growth of businesses strategically well positioned.
Investing with tailwinds is often advantageous: businesses in industries that are growing naturally will typically find it much easier to earn higher returns on investment.
Here are five investment megatrends to consider:
1. Asian middle class
This relates to the emergence of the Asian middle class that will continue to generate larger-than-average rates of consumption growth. Consider that in China alone, there is around $4 trillion of annual consumption that is growing rapidly; and another $2 trillion in India and Indonesia that is also growing.
As the nearly 3 billion citizens of these three countries alone grow their wealth, their consumption – discretionary and non-discretionary – will naturally increase. And to put the size of this population in some context, it is more than 120 times that of Australia.
2. Ageing populations
At the other end of the spectrum are the aging populations of many of the world’s developed countries. We know about the dynamics of an ageing population pretty well in Australia. Yet many are often surprised to learn that the same dynamics exist in the United States, most Western European countries, and the United Kingdom. Even Brazil and Mexico fall into the same category.
Once again, with sustained structural changes of this nature comes opportunity. In the US, for example, 10,000 citizens turn 65 every day. And not surprisingly, the medical requirements of this age group look very different from those of their younger counterparts. Senior Americans utilise nearly three times as many prescriptions as the younger population.
Or consider that, while the percentage of individuals requiring vision correction is over 70 per cent for people aged 45, it is about 95 per cent for people aged 70. Businesses such as CVS Health in the US or Essilor International in France are leveraged to these trends.
3. Smartphones
Trends in technology can also be sustained and structural in nature. Consider the smartphone: this pocket-sized computer and wireless communication device has become the largest technology platform the world has ever seen. The installed base of smartphones today is around 2.6 billion; and yet this will more than double by 2020 – with most of the growth occurring in developing countries. The opportunities this will create for e-commerce, communication, social networking, healthcare and many other industries are endless.
Even installed machine-to-machine connected devices, otherwise known as the “internet of things”, will grow from around 250 million today to over one billion by 2020. A company such as Qualcomm in the United States, which owns many of the patents to 3G and 4G mobile telecommunications technology, is well positioned for these structural trends.
4. Healthcare revolution
Technological changes are also occurring in healthcare. Wearable devices that monitor aspects of your biochemistry and physiology can connect directly to your smartphone. This data can be aggregated on platforms, such as Apple’s HealthKit. Big data analytical algorithms can then be applied to help facilitate early detection of possible health issues on a person-by-person basis.
Similar analytical techniques are being applied to human genetics to tailor personalised medical treatment to the individual characteristics of patients.
If there is one sensible conclusion we can come to, it is that the delivery of healthcare in the future will look very different from its delivery in the past. With US healthcare expenditure at around 17 per cent of gross domestic product – a level way too high and almost double the share of the economy that Australia spends on healthcare – the Americans are facing one of the largest “cost-reduction” opportunities in healthcare the world has ever seen.
5. Record low interest rates
Finally, we are arguably in the midst of a multi-decade trend of highly accommodative and coordinated monetary easing by many of the world’s largest central banks. Quantitative easing, or the direct buying of bonds in the open market – as it is known, has become the norm for central banks that control the monetary policies of countries that represent around half the world’s economic output.
Early in the last decade, Japan experimented with quantitative easing. Then, after the global financial crisis, the United States and United Kingdom followed suit. Most recently, the European Central Bank announced it would purchase 60 billion euros a month worth of government bonds at least until the end of September 2016.
This trend of highly accommodative monetary policy has been very positive for stocks and will likely continue to be for some time. UK and European equity fund managers, such as Henderson Group, are leveraged to the latest iteration of this trend.
Gaining exposure to megatrends
For Australian investors, including many self-managed super funds, gaining exposure to some of these megatrends is not particularly straightforward. It is an enormous amount of work for an individual to identify and monitor these global themes; followed by the identification of the right individual stocks to buy that are well-positioned to benefit from these themes. And that assumes the individual has at least some background in global businesses and industries. This perhaps explains why Australian self-managed super funds are significantly underweight global equities en masse (that is, they have a low allocation in their portfolio to international shares)
Many investors use a small number of trusted fund managers to identify and monitor global themes and their subsequent investing opportunities. This is sensible as it effectively leverages the experience, skill and manpower of the fund manager’s team. Talented global fund managers based in Australia have been relatively few and far between, though this is now changing. As technology has flattened the world and talented Australians return home, we are seeing some high-quality, Australian-based global offerings for Australian investors.
This does not make the task of selecting an appropriate fund manager any less challenging for investors. It is, however, probably a better use of investor time. Instead of trying to pick individual global stocks – a task that only a highly skilled and experienced team can do well – Australian investors would perhaps be better served spending that time identifying a portfolio manager they can trust, understand and in whom they believe.
Andrew Macken is a Portfolio Manager with Montgomery Global Investment Management. To learn more about Montaka, please call +612 7202 0100.
The article in its original form can be found here.
Five megatrends shaping new investment opportunities
Although Australia has a bustling economy, we sometimes forget it represents just two per cent of the global economy. This presents Australian investors with a challenge and an opportunity to identify and gain exposure to some of the largest structural global megatrends.
Why consider megatrends when investing in stocks? Structural trends can provide a sustained tailwind to the growth of businesses strategically well positioned.
Investing with tailwinds is often advantageous: businesses in industries that are growing naturally will typically find it much easier to earn higher returns on investment.
Here are five investment megatrends to consider:
1. Asian middle class
This relates to the emergence of the Asian middle class that will continue to generate larger-than-average rates of consumption growth. Consider that in China alone, there is around $4 trillion of annual consumption that is growing rapidly; and another $2 trillion in India and Indonesia that is also growing.
As the nearly 3 billion citizens of these three countries alone grow their wealth, their consumption – discretionary and non-discretionary – will naturally increase. And to put the size of this population in some context, it is more than 120 times that of Australia.
2. Ageing populations
At the other end of the spectrum are the aging populations of many of the world’s developed countries. We know about the dynamics of an ageing population pretty well in Australia. Yet many are often surprised to learn that the same dynamics exist in the United States, most Western European countries, and the United Kingdom. Even Brazil and Mexico fall into the same category.
Once again, with sustained structural changes of this nature comes opportunity. In the US, for example, 10,000 citizens turn 65 every day. And not surprisingly, the medical requirements of this age group look very different from those of their younger counterparts. Senior Americans utilise nearly three times as many prescriptions as the younger population.
Or consider that, while the percentage of individuals requiring vision correction is over 70 per cent for people aged 45, it is about 95 per cent for people aged 70. Businesses such as CVS Health in the US or Essilor International in France are leveraged to these trends.
3. Smartphones
Trends in technology can also be sustained and structural in nature. Consider the smartphone: this pocket-sized computer and wireless communication device has become the largest technology platform the world has ever seen. The installed base of smartphones today is around 2.6 billion; and yet this will more than double by 2020 – with most of the growth occurring in developing countries. The opportunities this will create for e-commerce, communication, social networking, healthcare and many other industries are endless.
Even installed machine-to-machine connected devices, otherwise known as the “internet of things”, will grow from around 250 million today to over one billion by 2020. A company such as Qualcomm in the United States, which owns many of the patents to 3G and 4G mobile telecommunications technology, is well positioned for these structural trends.
4. Healthcare revolution
Technological changes are also occurring in healthcare. Wearable devices that monitor aspects of your biochemistry and physiology can connect directly to your smartphone. This data can be aggregated on platforms, such as Apple’s HealthKit. Big data analytical algorithms can then be applied to help facilitate early detection of possible health issues on a person-by-person basis.
Similar analytical techniques are being applied to human genetics to tailor personalised medical treatment to the individual characteristics of patients.
If there is one sensible conclusion we can come to, it is that the delivery of healthcare in the future will look very different from its delivery in the past. With US healthcare expenditure at around 17 per cent of gross domestic product – a level way too high and almost double the share of the economy that Australia spends on healthcare – the Americans are facing one of the largest “cost-reduction” opportunities in healthcare the world has ever seen.
5. Record low interest rates
Finally, we are arguably in the midst of a multi-decade trend of highly accommodative and coordinated monetary easing by many of the world’s largest central banks. Quantitative easing, or the direct buying of bonds in the open market – as it is known, has become the norm for central banks that control the monetary policies of countries that represent around half the world’s economic output.
Early in the last decade, Japan experimented with quantitative easing. Then, after the global financial crisis, the United States and United Kingdom followed suit. Most recently, the European Central Bank announced it would purchase 60 billion euros a month worth of government bonds at least until the end of September 2016.
This trend of highly accommodative monetary policy has been very positive for stocks and will likely continue to be for some time. UK and European equity fund managers, such as Henderson Group, are leveraged to the latest iteration of this trend.
Gaining exposure to megatrends
For Australian investors, including many self-managed super funds, gaining exposure to some of these megatrends is not particularly straightforward. It is an enormous amount of work for an individual to identify and monitor these global themes; followed by the identification of the right individual stocks to buy that are well-positioned to benefit from these themes. And that assumes the individual has at least some background in global businesses and industries. This perhaps explains why Australian self-managed super funds are significantly underweight global equities en masse (that is, they have a low allocation in their portfolio to international shares)
Many investors use a small number of trusted fund managers to identify and monitor global themes and their subsequent investing opportunities. This is sensible as it effectively leverages the experience, skill and manpower of the fund manager’s team. Talented global fund managers based in Australia have been relatively few and far between, though this is now changing. As technology has flattened the world and talented Australians return home, we are seeing some high-quality, Australian-based global offerings for Australian investors.
This does not make the task of selecting an appropriate fund manager any less challenging for investors. It is, however, probably a better use of investor time. Instead of trying to pick individual global stocks – a task that only a highly skilled and experienced team can do well – Australian investors would perhaps be better served spending that time identifying a portfolio manager they can trust, understand and in whom they believe.
The article in its original form can be found here.
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