5 Top Investment Themes

In a previous article on thematic investing, we looked at the basics of this unique investment strategy and highlighted some of the key advantages that this approach to portfolio management offers over traditional benchmark-based forms of investing.

In this article, we will be exploring a number of key themes that we believe offer compelling investment potential going forward.

Here are five of our top investment themes:

The world’s ageing population and birth-rate decrease is a colossal theme that is impossible to ignore. Across the world, life expectancy at birth has increased by almost 20 years over the last half century, and it’s estimated that by 2050, there will be over two billion people aged 60 or older globally – more than twice the number of people of this age in 2000.

In the UK, the Office for National Statistics expects over-65s to account for approximately 26% of the total UK population by 2066, up from 18% in 2016.

Naturally, this increase in the age of the global population is likely to have a number of implications and create a broad range of investment opportunities. One industry, in particular, that looks set to benefit is healthcare.

As people age, their demand for healthcare-related products and services increases. For example, in the US, healthcare spending on the elderly is around triple that spent on the general working-age population.

Therefore, it’s likely that the world’s ageing population will provide powerful tailwinds to the healthcare industry in the years ahead.

Some other examples of distinct areas within this theme include:

• Pharmaceuticals: Drug companies developing new medicines to treat age-related chronic diseases like diabetes, cancer, and Alzheimer’s stand to benefit from growing demand.
• Medical Devices: Innovative medical devices that help manage conditions common in elderly populations, like heart disease and osteoporosis, should see increased adoption.
• Senior Housing: Facilities focused on assisted living and nursing homes should attract more residents requiring care.
• Home Healthcare: Services providing at-home carers, telehealth, and remote monitoring will be needed to serve the growing and aging population.
• Healthcare Technology: Technology such as AI and analytics will be critical to boost efficiency and gain the insights needed to serve patients as quickly and effectively as possible.

One specific area of disruptive technology that we believe offers immense potential is artificial intelligence (AI).

Artificial intelligence is an area of computer science that aims to create intelligent machines that can teach themselves and can think and function in a similar way to humans.

In recent years, advances in machine-learning technology have enabled computers to complete sophisticated tasks that, only a decade ago, would have been unimaginable. Yet, this could just be the beginning. Over the next decade, AI could potentially transform almost every industry.

We believe that now is the time to take a closer look at companies that are developing AI technology, such as Microsoft with Bing Chat, OpenAI with ChatGPT, and Anthropic with Claude 2.

Some other examples of distinct areas within this theme include:

• Autonomous Vehicles: Self-driving vehicle technology such as Tesla will disrupt the automotive industry and permit new autonomous mobility services.
• 3D Printing: Additional manufacturing using 3D printers will transform production methods across industries like aerospace, automotive, and healthcare.
• Drones: Commercial drone usage for deliveries, surveillance and security, agriculture, and more will expand thanks to improved battery life and autonomy.
• Blockchain: Blockchain will open up new ways to exchange value and track goods and information.
• Clean Energy Tech: Renewables, batteries, storage, and hydrogen fuel cells will help enable and speed up the broad energy transition underway.

Another niche area of technology that we believe offers vast potential is that of robotics—the design and operation of robots.

Robotics is not a new industry, as robots have been used to complete repetitive tasks within the manufacturing industry for decades now. However, technological advances in recent years have given rise to a new generation of more intelligent robots, and the use of these robots is gaining traction across a broad range of industries, including healthcare, retail, and hospitality.

Today, robots can sense the environment that they are in, interact and work with humans, and perform sophisticated tasks. For example, companies such as Amazon and Ocado now use thousands of robots in their warehouses to pack goods efficiently. Robots are now also being used in the healthcare industry to perform surgery and in the retail industry to assist shoppers. According to PricewaterhouseCoopers, by 2030, up to a third of British jobs could be done by robots.

With robotics technology likely to continue advancing in the years ahead, we believe the sector is an attractive space for investors.

Some other examples of distinct areas within this theme include:

• Robotics components: producers of key components like sensors, actuators, vision systems, and AI software, will benefit from growing robotics adoption.
• Service robots: service robot makers like iRobot (Roomba) and Intuitive Surgical (da Vinci surgical system) are tapping into business and healthcare.
• Industrial robots: companies producing more advanced industrial and factory based robots, could see continued growth as manufacturing automation advances.

Linked closely to both the disruptive technology theme and the robotics theme is the more under-the-radar theme of materials.

Demand for lightweight materials across the automotive, aerospace, energy, and construction industries has increased significantly in recent years due to advances in technology as well as environmental concerns and government regulations.

For example, rising awareness about fuel emissions has led to vehicle manufacturers turning to lightweight materials to reduce the weight of vehicles. Looking ahead, we believe that demand for advanced materials such as graphene, aluminium, advanced high-strength steel, titanium, and magnesium should remain robust in the medium to long-term and could present excellent investment opportunities.

Metals associated with battery technology, such as cobalt and lithium, are another key area to watch, in our view. With the number of electric vehicles on our roads likely to increase significantly in the years ahead, demand for these metals should generate a number of investment opportunities.

Lastly, we continue to see enormous investment potential within the smaller company space, and this is a theme that is linked to all of the themes discussed already.

Smaller companies, in general, tend to offer greater potential for capital growth than larger, well-established companies simply because they are at an earlier stage of the business life cycle, are more innovative, and are growing at a faster rate.

Indeed, many studies have shown that in the past, the strongest long-term stock market returns have actually come from smaller companies and that small-cap stocks have consistently outperformed large-cap stocks over the long run.

While the UK is home to a large number of disruptive smaller companies that have huge growth potential, there are many other regions across the world that offer investors growth opportunities in the small-cap space.

It’s worth noting that many larger investment managers are unable to invest in smaller companies due to size and liquidity restrictions, which is why many of them fail to outperform the market. As a smaller, boutique investment manager, we have a competitive advantage in this regard due to our size and have the flexibility to invest in early-stage companies and benefit from their growth.

Smaller companies have generated excellent returns for investors in recent years, however, with technology continuing to advance, we believe that smaller companies will continue to generate strong performances in the years ahead.

As expert investment managers, our team has the flexibility to invest in funds of all sizes poised to benefit. If you’re interested in incorporating any of these forward-looking themes into your portfolio, book a call now! Our experienced team stays on top of major trends across sectors and regions to identify opportunities. We’ll discuss how thematic investing could help you achieve your financial goals through targeted, customised strategies.

REGULATORY INFORMATION

This communication does not constitute tax or financial advice. All information is accurate at the time of writing. The value of investments can go down as well as up. Capital is at risk. Featherstone is a trading name of Featherstone Partners Limited, Old Brewhouse, Yattendon, Berkshire, RG18 0UE, which is authorised and regulated by the Financial Conduct Authority (799741) and registered in England (Company Number 11039522).

At Featherstone Partners, we are aiming to capitalise on thematic investing, and we believe that a portfolio consisting of various specialist fund managers based around the world, and focused on specific themes, is likely to outperform the generalist approach to wealth management that is often observed within the investment management industry.

Our clients enjoy the qualities of a smaller, friendlier firm, while benefiting from our team’s experience working at firms such as Goldman Sachs, UBS, GAM, Ruffer, and Close Brothers. Aligning our interests with those of our clients, we invest alongside them, and our founders, staff, families, and friends are among our largest (and smallest) investors.