Investing for the long term means tapping into the enduring trends that will guide the world for decades to come. Some of the most important themes have been accelerated under the Covid-19 crisis, creating a wealth of opportunities for investors. Here are four themes to consider:
Robotics has been on a steady growth trajectory since its invention in the 1960s. But much of its capabilities have so far only been deployed in the consumer electronics and automotive sectors.
Peter Lingen, senior investment director at Pictet-Robotics, expects the adoption of robotics to grow significantly in the coming years, a trend that could be accelerated with social distancing measures.
One of the most appealing aspects of using these technologies, he says, is saving on costs while still having an efficient production line. So-called collaborative robots – or cobots – are a good example, he says: “Cobots are cheap, easy to deploy and work side-by-side with people in the modern factory. They are a good complement to traditional industrial robots.
He expects the use of these cobots to expand into many different industries and technologies, a trend that should benefit Teradyne,
Lingen also expects companies in many different industries to start using cobots and other automation technologies as they move production out of China. “Through our position in Teradyne (TER), we own the world’s leading cobot maker, Universal Robots, as well as some of the traditional robotics makers like Fanuc and Yaskawa,” he says.
For her part, Karen Kharmandarian, manager of the Natixis Thematics AI and Robotics fund, said that another advantage of investing in this theme, beyond its future growth, is that it has been underexposed to sectors that suffered the most from the recent slowdown, such as financials and energy. She says, “AI and robotics have benefited from a flight to quality. The trend consists primarily of companies with superior, visible long-term growth and very strong financial profiles overall with net cash on the balance sheet.
When we think of the subscription economy, we might first think of video and music streaming, but in reality, the investment universe is much larger than that. From our mobile phone plans to gym memberships, subscription models are an integral part of our lives.
Costco Wholesale (COST) is an example; a club warehouse where to access the warehouse – basically just a mall – you have to be a member and pay an annual subscription. HelloFresh (HFG), meanwhile, is a meal kit delivery company that delivers weekly ingredients and recipes for the whole family for a regular fee.
Software vendors have seen the benefits of this pricing model and many have switched to it in recent years. Microsoft Office, which was previously a one-time purchase of a disc, for example, is now a subscription to a cloud version of the software. The client benefits from regular updates and the business benefits from a reliable and permanent revenue stream.
Nolan Hoffmeyer, manager of the Natixis Thematic Subscription Economy fund, says: “Companies that sell subscriptions get recurring revenue and don’t need to generate new sales. This means it’s almost impossible for revenue to drop to zero. in a quarter.”
He adds, “And if you look at the younger generation, they don’t necessarily want to own things, but they want to use things. So why own a DVD if you can just watch the movie without owning the DVD?”
Security is everywhere – especially in the current crisis – and is a top priority for business leaders and governments, as well as individuals. Matthieu Rolin, co-manager of the Natixis Thematics Safety fund, invests in products and services that are in line with this trend.
But safety doesn’t just mean hard hats and PPE, it’s also about protecting ourselves in the digital world. Rolin invests in data centers, server security and cyber insurance companies and security chip makers, but also in businesses related to digital payments. “We want to take advantage of this transition from cash to digital payments,” he says.
Security is a resilient trend to invest in, says Rolin; a company will almost never cut security spending: “Imagine we’re in a recession, companies need to cut spending because revenue is going down, but you’ll see that security spending is the last thing they’ll cut.”
He adds. “If a corporate network gets hacked because it has decided to cut cybersecurity spending, the reputation of the company is destroyed and it’s something business leaders want to avoid at all costs”
He likes companies like Thermo Fisher (TMO), which develops test kits to detect the Covid-19 virus. Producing 5 million tests per week, it is the largest producer of coronavirus tests in the world. He also likes Rollins (RLS), the American pest control leader, which has just created a new disinfectant service called Vital Clean. “We see companies adapting to the situation and trying to provide answers to the Covid crisis,” adds Rolin.
The word commodity may make investors think of gold or oil, but water may actually be more valuable than any of them. Simon Gottelier, co-manager of the Natixis Thematics Water fund, believes that investment in water infrastructure will increase, especially in emerging markets, as well as spending on flood and drought mitigation technologies.
It invests in businesses as diverse as water-smart residential irrigation companies, laboratory testing companies, waste management companies, regulated utilities and concession companies in the United States and from the UK to Brazil and China.
In particular, he likes UK groups such as Pennon (PNN) or an American utility like American Water Works (AWK) because they “have really displayed reassuring defensive characteristics”.
“Water is absolutely everywhere in our lives, it is intimately linked to everything we do, all the time,” says Gottelier. “Whether it’s a power plant cooling tower or using ultrapure water for semiconductor manufacturing, the flow, processing, collection and use of water are absolutely essential and require constant attention and ultimately investment.