The alarming political situation in the world, the continuous development of high technologies and the change of generations have formed several stable trends in the global investment market. Some of them are already able to generate profits of more than 25% per annum, while others will be shot only after a few years and are of interest for long-term investors.
Fashion for responsible investments
Throughout the year, two fashion abbreviations reflecting the nature of investments - ESG (Environmental, Social and Governance) and SRI (Social Responsible Investment) - do not come off the pages of financial publications. In fact, this includes all types of business that can positively affect the life of society, as well as companies that pay special attention to environmental and social aspects. In 2016, investments in the ESG sector reached $ 10.4 trillion, calculated at the World Bank.
According to the estimates of the US Treasury, socially significant investments make about 85% of “millenial” (young people born in the late 20th century). Their influence on this market will grow even more when this generation inherits from its parents - baby boomers - assets worth about $ 41 trillion.
The range of potential targets for investment in the ESG / SRI segments is huge - from small start-ups involved in the development of a water treatment system to global projects to deal with climate change. As a rule, such initiatives are built on completely new technologies, which have not yet been tested, and practices.
For those who are not ready for venture risk, analysts, for example in Thomson Reuters, have introduced ESG ratings for companies from traditional sectors. Indices reflect the level of socially significant practices in enterprises and, apparently, often affect investment decisions.
A couple of years ago, Warren Buffett acquired a stake of over 9% in Axalta Coating Systems - one of the world’s largest manufacturers of paint inks. The company’s shares show very modest growth, but it always has a high ESG-rating and an excellent reputation in the field of quality management.
In May last year, French Axa decided to get rid of tobacco assets at € 1.8 billion. And in mid-2017, one of the world’s largest players in the reinsurance market - Swiss Re - announced that its entire portfolio of $ 130 billion will be managed taking into account ESG principles.
In turn, shares of the supermarket chain of organic food Whole Food Markets have lost almost half of their value since 2013, but are now considered undervalued: the fashion for healthy lifestyles and organic food gradually improves the company’s well-being.
The fashion for responsible investments has also spawned a great many ETF thematic exchange traded funds. They do not bring fabulous profits, giving up to 10.5% per annum in the long run. But competition in the market helps private investors save a little. Thus, the largest ETF issuer in the world - the BlackRock fund - has recently halved its commissions for all “socially responsible” securities issued by it.
Health of a new type
When in the health sector began to actively implement technology based on Big Data and machine learning - this industry has experienced a real boom. In 2015, venture investments in the direction of Healthcare in the US alone reached $ 7.5 billion. In 2016, this figure was already $ 7.7 billion.
It is likely that now we are witnessing a second wave of this boom. Analysts of Silicon Valley Bank are sure that in 2017 the record will be beaten - in the first half of the year, investments in start-ups in this sector have already exceeded $ 6 billion.
In addition, Western consumers are increasingly distrusting their beauty and longevity for surgeons and increasingly - the medical segment of anti-aging, which focuses on taking into account individual characteristics and preventing diseases.
New opportunities in this area are based on the analysis of huge arrays of historical data, a comprehensive study of the systems and cells of the body, which ultimately allows you to calculate and prevent risks to the health of each person.
Because they want to be healthy and live long, they do not have problems with demand. At the same time, investors have already received a good vaccination from excessive enthusiasm for breakthrough medical technologies. After the failure of the company Theranos, the market thought about how vague and unpredictable this industry is. In the summer, Stanford University launched a startup associated with rapid blood tests, and now has to continuously repeat that the new development has nothing to do with the Theranos system. But there is no special confidence in the market for these statements.
Because of such fears, many investors prefer investing in Healthcare through managers with a sectoral bias or choosing the familiar markets of ETF, which are quite suitable for long-term savings. For example, the Platinum International Health Care Fund from November 2003 to the end of October 2017 provided an average annual return of 9.73%.
Artificial Intelligence Gains Power
In the AI sector, for a long time, investments were mainly made in two directions - through small start-ups or inside large companies. Now these directions crossed the market. In 2017, investments in artificial intelligence reached a new stage - mergers and acquisitions. Market giants actively buy small profile players, and most often this positively affects their well-being on the stock exchange.
With the participation of companies working in AI, last year 591 deals were made for a total of $ 4.2 billion. The trend was led by technological giants who made the largest M & A deals. Google, Apple, Intel, Microsoft and Salesforce absorbed in 2016 more than 40 companies that deal with machine learning, data science, natural language processing and computer vision.
The acquisition of AI-companies became one of the drivers of growth on the stock exchange - the same Google continues to grow in the year by tens of percent, despite the significant costs and risks associated with the introduction of new technologies.
However, do not forget that artificial intelligence - it’s still a bit about the future. And most AI-based products, such as video systems for autopilots on Nvidia’s roads, will begin to bring profit closer to 2020-2030.
“Absorption of technologies”
This year, for the first time in the history of the market, the non-tech sector invested in private technology startups more than the IT sector. Today, 51% of the funds spent by Fortune 500 companies on techno-startups are for players who do not earn money directly from the technology, but only use them in their work.
Over the past few years, there has been a whole list of industries that are being actively spent on the technological component. This is primarily financiers (Goldman Sachs, Citigroup, American Express), media (Disney, Time Warner, Discovery), industrialists (General Electric, Caterpillar), physicians (Anthem, Humana) and business service providers (Master Card, Western Union).
As a rule, technological transformation on the basis of acquired resources helps companies to reduce costs, expand their presence, and increase the impact of “physical” sites. Therefore, the market traditionally reacts to the absorption of techno-startups by increasing the quotations of the parent company.
One of the largest recent acquisitions is the acquisition of Jet.com by the retail network Walmart. In 2016, the retailer paid $ 3 billion for the leader of the US e-commerce market. Walmart is confident that the technological capabilities obtained will help make the service for customers more personalized and thus stand out among the competitors.
Specialists say that, by and large, retailers do not know exactly which personalization elements work better - individual dispatch, personal recommendations based on previous purchases or, for example, personal greetings in the hall.
However, companies in order to run these options will in any case have to collect information about the buyer, properly process it and provide them in time. So, investments in IT are timely and justified. And although Walmart did not announce specific technological plans, its shares began to grow steadily. The trend remains so far - since the beginning of 2017, the company’s papers have added 29%.
At the same time, the policy of “technology absorption” actually turns into a mainstream for non-tech enterprises, so it does not give them any significant benefits compared to competitors. But the lack of such investments from a major player is an alarming sign for the investor.
China again in favor
Investors’ attention is regularly shifted from developed markets to developing ones and back. Now, undoubtedly, the time is Emerging Markets. The reason, rather, is not the well-being of the APR countries - there are also many difficulties. Simply investing in key developed economies is even more risky. Ambiguous behavior of US President Donald Trump, his friction with the Congress over tax reform and hurricanes in the US have reduced the attractiveness of the North American market.
In Europe, in the meantime, the situation is heating up because of the situation in Catalonia - the richest region of Spain. In addition, there remains uncertainty about the consequences of Brexit.
As a result, investors, primarily Western ones, once again started to think about developing economies. Here, the stock markets continued the recovery, which began last year. As of the end of October, the MSCI Emerging Markets index grew by 32.64%, while the MSCI World Index - only by 18.76%. On indicators year to year, developing countries are also ahead - 26.91% growth against 23.46%.
Against the backdrop of this dynamic, Western investors amicably recalled the prospects for the consumer sector in China. According to forecasts of McKinsey, in five years the number of middle class in the PRC will more than double and amount to 600 million people. This contributes to the growth of quotations of thematic funds, such as Premium China Fund, which invests in companies with listings in Hong Kong, mainland China and Taiwan. The average yield of these securities over 12 years was slightly more than 10.5% per annum, but for the year from September 2016 to September 2017, their value growth exceeded 28%.
Those wishing to earn on Chinese consumption are called for caution, pointing to the lack of transparency of many structures in the PRC and corruption scandals. However, the same thing is said about Russia, which does not prevent foreign investors from making profits on the Russian market. And judging by the rhetoric of Trump and the situation around Catalonia, China and other emerging markets will be in demand for a long time.
Investment into sustainable, high return businesses
Investing into renewable, eco-friendly, sustainable projects is becoming more and more popular because it is not only highly profitable, but also ethical and environmentally friendly. It is the other type of investment which benefits humanity as a whole in the long run.
Here at Envestio we have handpicked the best investment opportunities for you.
If you care about the environment, check out our current sustainable energy investment projects on our website - click here!