From robotics to cloud computing: Where are the big investment opportunities?
In a decade or so, Asia will have the most dynamic middle-class consumer segment, offering great investment possibilities
A thematic analysis of the world requires a mind that is open to the myriad possibilities and endless constellations of the way information can come together to form patterns and give way to ideas and themes.
From my point of view, this way of investing is by no means new. Going back to the early 2000s, it has come a long way and endless investment themes have sprouted in the meantime from every possible social, economic, demographic or technological angle – like digital security, sharing economy, millennials etc.
That’s why we examine our world with the goal of finding similarities between seemingly independent data points and we then bring them together around central concepts.
When I was asked about what is the most important aspects of Julius Baer’s approach, I always said that there are a couple of things. First of all, our team has a research and investment background and this allowed us to have an interdisciplinary approach right from the beginning. In fact, our firm was one of the very first banks to do thematic research at the time. In addition, we built a proprietary tool to rank industries and companies according to our philosophy.
This approach started out as a purely research-driven exercise. We were the first ones to identify the “Silk Road”, orphan drugs for rare diseases, digital health, and education, amongst others, as key globally relevant trends. We began publishing our findings in white papers and presenting them to our clients at our Next Generation Dialogues.
Suddenly, we noticed that research papers make a lot of great reactions from clients. In fact, more and more clients started saying to us “OK, I read your paper, but how can I invest in that theme?” That is when the investment side took over. We first designed various passive products for different investment themes. Some of them went on to win industry awards.
Eventually, we grouped various stand-alone themes into what we considered ‘five key global megatrends’ – for example, macroeconomic, geopolitical, and technological forces that were profoundly changing our world and shaping our future at an unprecedented pace. We then launched actively managed strategies based on this cross-thematic approach.
These five key structural growth themes that we have identified and have chosen to invest in are Arising Asia, Digital Disruption, Energy Transition, Feeding the World, and Shifting Lifestyles.
Nevertheless, you could wonder why I decided to focus on these. The answer is simple. For us, it comes down to numbers. Over the last ten years, the middle class in Asia has tripled from 500 million to about 1.5 billion and is expected to increase to over 3 billion by 2030. What that means is that in a decade or so Asia will have the most dynamic middle-class consumer segment.
Looking for opportunities
Then, we need to translate these trends into investment opportunities. That’s the next step. So, think travel, think cosmetics, beauty and wellness, and new consumer trends in any area that contributes to upward social mobility. We look at companies who foresee this and develop goods and services in the premium consumer segment.
Also, digitalization is indeed a key focus area, with great opportunities as well as high risks. Consumers benefit from the constant change but for investors the risk of failing is very real. So many companies come and go, creating huge hypes and then disappearing into oblivion. You might win it all or lose it all.
For example, we don’t invest in robotics at the moment, because we believe that they are affected by the negative growth prospects of the car industry. This means that robotics is currently overpriced. But we like cloud computing, which is expected to grow to over $600 billion by 2023.
In short, we constantly analyze every shift in the investment universe, in order to connect them to the big picture and consider both the upside and the downside they represent. One of the digital payment companies we included in our portfolio was bought right afterwards by an industry leader – and needless to say, this helped us deliver outperformance.
This is where our clients benefit from having a top-down and bottom-up approach, combined with a high-conviction investment style.
* Jiazhi Chen Seiler is head of the Next Generation Investing Team at Julius Baer For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.