Megatrends. More and more often, investors are not orienting themselves to countries when building up their equity portfolio, but to themen. "The pandemic will reinforce trends that were clearly visible before," says Ed Verstappen, trend investing expert at Robeco. Today is therefore a good opportunity to invest in this sector. The professional explains what investors should bear in mind when making theme investments.
"Looking back, investing is so easy," reflects Ed Verstappen, trend investing expert at Robeco Germany. "Why didn't we all buy Amazon shares in 2002? And watched the share price double. And doubled. And doubled again and again?"
It couldn't have been due to the basic understanding of the megatrend internet, software & service. "But first of all, people are not good at thinking and investing over periods of five to ten years. As a rule, they are therefore unable to exploit long-term potential. And second, it is difficult to correctly assess exponential growth potential. Those who have linear developments im Kopf cannot adequately govern changes with disruptive effects."
A special investment approach is taking advantage of the opportunities arising from this misjudgement. "Trend-Investing focuses on real megatrends - developments that are capable of influencing society, the economy and our entire lives. This is particularly interesting today. After all, the current pandemic is a catalyst for a change that is taking place ever faster: digitization of numerous industries, platform economy, changes in mobility - for long-term investors it is crucial to identify these structural winners and avoid potential losers," Verstappen makes clear.
Robeco has identified three such megatrends. One is technological innovation, which is driving an accelerating cycle of innovation. They are responsible for the fourth industrial revolution. Interesting individual topics are digitalization, artificial intelligence, robotics technology, genome sequencing and the Internet of Things.
The second megatrend is sociodemographic changes. In the industrialized nations, the population is aging. The younger generation is at home in the digital world. And countries like China and India are characterized by an emerging middle class. "This is changing consumer habits or the way we pay, creating opportunities for consumer and fin tech companies."
The third is paraphrased "Preserve the Earth". Resources are becoming scarce, environmental awareness is increasing, regulation is being tightened. "Investors can benefit from this, especially through the different facets of sustainable investing."
The decisive factor for investment success is now how the idea is actually implemented. "We at Robeco have a special approach to this," Verstappen explains. When it comes to new technologies, the hype cycle of the management consultant Gartner helps. It illustrates very well how innovations typically proceed.
The initial euphoria, coupled with high expectations, is often followed by a wave of disappointment with bankruptcies and market shakeouts. If the speed of dissemination of the new technology actually increases later on, the real winners crystallize. "For example, the number of relevant smartphone manufacturers has ultimately been reduced to just three - Apple, Samsung, Huawei."
At each stage of this cycle the strategy must be adapted. At the beginning it makes sense to buy a wide basket of shares from potential profiteers. "This is a good environment for the so-called 'picks and shovels' approach," says Verstappen. This strategy got its name during the gold rush, when it was more lucrative to sell shovels and picks than to invest in - hopefully - high-yield gold mines.
"Today, this is true in the field of electric cars. No one can know which manufacturer will ultimately be successful. But suppliers like battery manufacturers or sensor manufacturers will definitely benefit."
Once the peak of expectation has been passed, it is time to sell and keep your feet still for the time being. "For example, Amazon did this at im Zeitraum from 2000 to 2003."
The valley of disappointment is then followed by the most exciting part of the theme investment. "Now the new technologies have overcome their teething troubles and some of the providers are continuing their growth. But because the disappointments of the past were too great, only a few investors notice this. It is now important to invest very concentrated in a few stocks." Currently, the industrial robot sector is in this phase.
After that, the only thing left to do is sit back. "Analyses show that 60 to 70 percent of the most successful industries were still leading ten years later," Verstappen reveals. The megatrend Internet, Software & Services, for example, has led to an uninterrupted rise in profits there since 2002 - and the price of Amazon shares has multiplied since then.
"Megatrends are running longer on the stock markets than many people can imagine," Verstappen concludes, adding: "The market turbulence in the pandemic ensures that investors today can invest at favorable prices in many of tomorrow's themes. This is an opportunity that is rarely seized. ®
Robeco Germany; www.robeco.de
Taunusanlage 17, 60325 Frankfurt