Investing in growth doesn’t just mean backing American tech titans. Citywire asked several wealth managers and advisers to disclose their favourite growth theme.
Derek Dryden, a wealth planning adviser at Gale and Phillipson in north Yorkshire, has more than half of his pension in artificial intelligence (AI) and allocates up to 10% of clients’ portfolios to the theme.
‘Many experts believe that AI will revolutionise the commercial world with long-term social and economic impacts that could be comparable to those of the railways, the internal combustion engine or the telephone,’ he said.
‘We’re all aware that self-driving cars and online shopping and service platforms already use AI, but other sectors are also beginning to be transformed by it.’
The adviser has ‘loved the theme’ since September 4 last year when he watched a presentation by Chris Ford on his Smith & Williamson Artificial Intelligence fund.
‘I truly had my eyes opened as Chris explained that he felt AI had the potential to transform the global economy over the next 20 years,’ said Dryden. ‘This was before the west discovered Covid-19 was going to change our world dramatically.’
Automation is a theme that wealth managers Charles Stanley has been investing in for nearly a decade and it continues to gain prominence. ‘It touches on the whole market and provides good diversification and growth opportunities,’ investment manager Will Dobbs said. ‘Businesses are keen on automation to reduce costs and improve productivity – a key issue for economies.’
A longstanding holding is AB Dynamics, a Wiltshire-based business that provides testing systems to the global motor industry. It tests driver-assisted safety features and is involved in the gradual move towards driverless vehicle systems.
The fund also owns Kion. Once solely a forklift truck manufacturer, it bought a software company that enables trucks to drive around warehouses picking up products, a strategy gaining traction in e-commerce.
Another investment is in L&G ROBO Global Robotics and Automation ETF, which tracks an index of companies involved in robotics, automation and enabling technologies. ‘These companies capture not only the traditional industrial robotics hardware, but also those developing the latest technologies and software in robotics,’ added Dobbs.
Online shopping has transformed the retail landscape yet the theme remains in its infancy, according to Canaccord Genuity investment director Patrick Thomas.
‘To us this is much more than a long Amazon, short Debenhams trade,’ he said. ‘It’s a structural investment theme encompassing multiple sectors and a transformative investment opportunity for investors.’
He sees the theme as multifaceted – it is partly an investment in logistics service providers and partly an investment in technology.
‘Interestingly, this is a shift away from big tech. It is really about knowing customers better (AI), getting products to them quicker (robotics) and doing so quickly and safely (digital payments),’ Thomas said.
He highlights L&G Ecommerce Logistics ETF as a ‘potentially useful way of thinking about this theme’. Its top two holdings are fashion and grocery e-tailers Zalando and Ocado. Those who want to play the theme as part of an active diversified growth fund could consider JPM UK Equity Growth, which has recently added Ocado and Asos to its holdings.
Ravenscroft is a long-term advocate of thematic investing, having taken such an approach since 2008. Its themes cover the developed and emerging consumer, ageing demographics and innovation.
One aspect of innovation it likes is environmental solutions, primarily for two reasons. ‘Firstly, there is a problem in terms of climate change and the sustainability of our planet for future generations and we really need to do something about it,’ said Sam Dovey, its head of fund research. ‘Secondly, governments have recognised this and are empowered to act. Whether it’s banning single use plastics or lowering CO2 emissions on cars, legislation is finally on our side.’
Ravenscroft started investing in the theme almost four years ago. It uses the Pictet Global Environmental Opportunities fund, which measures the impact of companies on ‘planetary boundaries’. ‘The fund is jam-packed with the normal suspects of water, waste and recycling companies, as well as “enablers” that help tackle the planetary problems we face, but in an innovative fashion,’ Dovey added.
Healthcare has stood out as a sector with high growth potential in recent years, but the coronavirus pandemic has heightened Vermeer Partners’ interest.
‘Covid-19 has intensified people’s awareness of health issues and of the benefits of a healthy lifestyle, which we expect to have a lasting effect,’ said chief investment officer Simon King. ‘Aside from the pandemic, the ageing global population provides a solid and predictable long-term growth trend in the provision of healthcare products and services, as both governments and individuals pour money into tackling the problems that accompany a large elderly population.’
Obesity is a growing issue and one that offers good growth potential from an investment perspective. Vermeer likes Novo Nordisk, which is taking on obesity through advanced drug development.
In addition, the wealth manager achieves exposure to the trend for remote healthcare services through funds like BB Healthcare. ‘A whole host of small, technology-driven healthcare companies are starting to gain traction with help from the financial backing of BB Healthcare and its peer group,’ added King.
Quilter Cheviot reckons it is ‘worth getting excited about’ the growth opportunity in renewable technologies.
‘The opportunity stems from the global need to address climate change and decarbonise our economies – two themes that have gained significant momentum and no doubt will remain prevalent over the coming decades,’ said equity research analyst Harrison Williams.
‘While renewable technologies have been around for several years, a number of tailwinds are now accelerating their growth and penetration in the energy market.’
These include increasing amounts of government support and regulation, and cost parity between renewable technologies and most traditional thermal methods of power generation.
While numerous players have entered the renewables market in recent years, pure-play stocks remain rare. One such company is EDPR, a Portuguese company with more than 11 gigawatts of renewable capacity. ‘The company is a best in class operator that achieves sector leading returns and protects itself from movements in power prices, with around 95% of revenue fixed on long-term agreements,’ said Williams.