Smart City - smart system.
Urbanization. More and more people are moving to the cities. In order for these to remain worth living, extensive investments are necessary. "This will benefit those companies that offer solutions," explains Ivo Weinöhrl, fund manager at Pictet Bank.
Miles and miles of traffic jams every day, endless waiting times and overburdening medical care, housing shortages, poor air quality, but also crime. All this causes trouble for the cities and their inhabitants. "They are already under massive stress today," says Ivo Weinöhrl, who manages the Pictet-SmartCity theme fund. "And it gets worse."
According to an estimate by the United Nations, around 55 percent of the world's population now lives in cities. By 2050, the figure is expected to rise to 68 percent. In concrete terms, this means that the number of people living in urban areas will increase by 2.5 billion during this period. "90 percent of this increase in the urban population will take place in emerging countries, especially India and China. But the problems associated with this are the same everywhere," explains the expert.
Already today, the approximately 470 megacities are responsible for 75 percent of global energy consumption and about 80 percent of CO2 emissions. The air quality is poor, with devastating consequences for the health of the inhabitants. The security situation is problematic. A lot of time is lost due to inefficient transport systems. "All this will continue to intensify in the future. For example, it is expected that by the end of this century the amount of waste generated by cities will triple."
It is the material from which dystopic pictures could be painted. Or a bright future. "A real Smart City can solve these problems. Why should we not be able to develop attractive cities, infrastructures geared to higher human needs? In which quality of life and sustainability are increased? The cities in particular are an ideal breeding ground for innovations," Weinöhrl is optimistic.
According to the Massachusetts Institute of Technology (MIT), for example, four out of five cars on the roads could become superfluous through collective trips and car sharing. And according to a study by the McKinsey consulting firm's Research Institute, using the data available today could reduce water consumption by 20 to 30 percent, reduce the crime rate by 30 to 40 percent, and optimize medical care and public transportation.
"All cities will invest massively in their infrastructure in the future. This is a huge future opportunity for companies that offer better and more sustainable solutions using new technologies," explains Weinöhrl.
Citigroup recently calculated the sums involved. It assumes that annual investments of 2.1 trillion dollars will be necessary in the coming years. The expert has no doubt that these investments will be implemented despite the poor state coffers in many places. "On the one hand, the idea of making cities safer, more resilient and more sustainable is anchored in the 17 sustainability goals of the United Nations," he explains. "On the other hand, I assume that a large part of the investments in smart cities will come from public-private partnerships or directly from the private sector."
In order for investors to benefit from this fascinating investment theme, he and his Smart City fund are looking for companies with innovative solutions. To this end, the manager divided the value chain in the creation of smart cities into three sub-sectors - building cities, keeping cities running, living in cities.
The first area deals with the planning, construction and financing of metropolises. This includes the development and financing of real estate or the improvement of building efficiency in connection with the limited space available in a city. "For example, we're looking for companies that can make more efficient use of space through technological improvements."
One example is the Finnish elevator and escalator manufacturer Kone. After all, buildings are increasingly being built higher. Elevators must allow a reliable and efficient flow of residents. Kone, which is one of the five suppliers that share 75 percent of the world market, could benefit from a significant increase in demand for its products and services in the future.
The second important sector covers the infrastructure and services segment. It is only in this way that life in a city can function on a daily basis. These include a sufficiently developed public transport system, energy and water supply, waste disposal and the structure of telecommunications. "Interesting from this point of view is Segro, a British company that owns distribution centres for the 'last mile'."
The third aspect is about making a city worth living in. The focus is on the creation of intelligent workplaces, innovative living solutions, leisure activities and childcare. "The US company Bright Horizons, for example, offers care facilities for young people in cooperation with large corporations. It enables both parents to work and thus to manage life in the city better and more stress-free," explains Weinöhrl. The success: "Over the past three years, sales have risen by an average of 8.8 percent per year and profits by as much as 34.5 percent.
What fascinates me so much is the predictability of these developments. Nothing will be able to stop the trend towards urbanisation. If we then want to live sustainably and healthily in these cities, they must become 'smart'," Weinöhrl sums up and concludes: "This is a gigantic investment opportunity. ®
// How to invest in smart cities.
In total, Pictet's experts have more than 20 years of experience with theme funds. They manage 42 billion dollars in 15 different strategies, of which Pictet SmartCity is the latest product. The basic idea behind the theme funds is always the same: "It's about structural and secular trends that generate a wave of investment," explains Ivo Weinöhrl, manager of Pictet SmartCity. "We're looking for companies that can benefit from it. This enables us to generate attractive returns over the economic cycle."
At Pictet SmartCity (ISIN: LU0503635624), fund manager Ivo Weinöhrl generates his ideas from around 40000 shares. The first step is to determine the proportion of sales and profits attributable to the "Smart City" investment theme. "This quota must be more than 50 percent, after all it's all about thematic purity," explains Weinöhrl. The 40 to 60 best individual ideas are then selected from the investable universe of around 230 shares and combined to achieve the highest possible diversification effect. The portfolio currently consists of 46 stocks from the three areas of urban planning and development, infrastructure and quality of life. If you want to invest more broadly in the megatrends of the future, you can also do so via the Pictet Global Megatrend Selection, which contains a total of ten theme funds.
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