After a very prosperous 2021 in the financial markets, the 2022 fiscal year promises to be even more complex. Frederic Rollin, investment strategy advisor at Pictet AM, asserts in a note he wrote in mid-May: “The investment climate appears to be getting darker and darker. Global economic growth is slowing, inflation is rising, no solution to Russia’s invasion of Ukraine looms and new lockdowns linked to Covid is hitting the whole of China, hampering growth.” With these pages closed, the CAC 40, the main index of the Paris market, lost 12%, the MSCI All Countries World, a reflection of international markets, fell 16%, and the Nasdaq, the index of American technology stocks, fell 25%…
Admittedly, the year is not over yet, but these bad numbers are there to remind us that the progress of the financial markets is not at all uniform and therefore it is necessary to invest in the stock market for the long term. This is even more true when choosing thematic funds. In fact, these products are designed according to very long-term giant trends that are structurally changing society, such as demography, urbanization, digitization of the economy … Based on these data, management companies identify promising investment topics, where they are likely to benefit from above-average growth. Here are 5 topics for the future, to use in small doses, to diversify your portfolio.
1/ Banking on the future of the web with metaverses
We’ve only heard about this for six months, but the concept isn’t new. Metaverses are immersive virtual worlds, from the world of video games. “It’s a natural evolution of the Internet, where experiences will become more immersive, instant and three-dimensional,” explains Pauline Landric, principal at Axa IM. Utopia? Pas pour Bloomberg Intelligence, qui évalue ce marché à 500 milliards de dollars et prédit une croissance moyenne d’environ 12% par an d’ici à 2024. Il existe quelques fonds indiciels (ETF) sur cette thématique, cotés-Unis aux in Canada. Recently, the management company Axa IM launched the Axa WF Metaverse Fund, with a narrow portfolio of 40 to 60 shares. Managers target many subtopics: video games, social networks, but also work.
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“We are interested on the one hand in immersive and collaborative work environments, and on the other hand in the use of metaverses in the industry, in particular to design prototypes, detail Pauline Llandric. Finally, the fund includes dimensional technology with players in the world of payments and cybersecurity… What are the differences with Standard Tech Fund? Fewer large amounts and the potential to target a few players unrelated to the sector. “We are investing in a healthy player who does mass rehab,” he cites the manager as an example: If a fund is too young to assess its performance, its profile leads it to Amplify market movements.
2/ Climate change: plenty of money
In 2015, during the Paris Agreement, 196 countries committed to limiting global warming to a level well below 2°C compared to pre-industrial levels. To achieve this goal, the needs are enormous. Therefore, countries release significant funds to promote the ecological transition, such as the European Green Deal. A massive project in which the financing is involved, by channeling capital to the main companies for the energy transition. The crazy thing is that climate-focused funds globally saw their assets double last year, to $408 billion, according to Morningstar. The offer is plentiful. The financial information provider explains that there are several types of funds in this universe.
Among them are “low carbon” products aimed at companies whose business is low in carbon dioxide emissions. Other media favor companies whose products and services contribute to the energy transition. These include the Pictet Global Environmental Opportunities (Pictet AM), the Mirova Global Climate Aspiration Fund (Mirova) and the Candriam Fund for Sustainable Climate Equity (Candriam). The latter can work in renewable energies, but also in energy storage and efficiency, electric vehicles, etc., and they also intervene in all stages of the value chain, from materials production to recycling. After a 40% performance in 2020, then 24% in 2021, the fund is down 21% since the start of the year. There is also a group of index funds (ETFs) compliant with the Paris Agreement. To claim this name (the fund name then includes the term “PAB” for the Paris compliant standard), these funds must have a carbon intensity of at least 50% lower than their investment realm in the first year and then achieve a decarbonization target of at least 7% annually.
3 / Well-being: a multidisciplinary subject
While environmental and technological topics have been on the rise for several years, the concept of well-being has recently emerged. According to director Allianz GI, this market is growing twice as fast as the economy. The term covers many sectors of activity, including physical activity, healthy food and nutrition, medicine, wellness tourism … and therefore the approach of managers can take various forms.: Allianz GI offers a fund for sports and well-being, including 3 pillars: sports and fitness (clothing, equipment, sports clubs); food and nutrition; Sports, leisure and entertainment. But other managers offer more targeted approaches.
At Pictet AM there is the Pictet Nutrition Fund, focused on the food of tomorrow, or the Pictet Human Fund, which aims to pursue a fulfilling life through entertainment, education and care. More authentic, the management company Triodos IM has just launched a product that focuses on the well-being and development of children. Another possible dimension: well-being at work, eg Sycomore Europe Happy@Work (from Sycomore AM).
4/ Hydrogen, an essential element for energy transfer
Why bother with hydrogen? Because this gas, which can be stored and transported, is at the heart of the energy transition. Some see it as the fuel of the future. Although today it is mainly produced from fossil fuels, new production technologies make it possible to produce “green” hydrogen, which emits few greenhouse gases. France has also drawn up a national strategy for the development of carbon-neutral hydrogen, with financial support of 7 billion euros by 2030. The European Commission also has great ambitions in this area. The topic is still new and there are quite a few products to bet on this trend. There are a few index funds including the L&G Hydrogen Economy UCITS ETF or the BNP Paribas Easy ECPI Global ESG Hydrogen Economy UCITS ETF. Management firm CPR AM has also launched a strategy on hydrogen, under an active management fund, CPR Invest Hydrogen.
“We cover the entire hydrogen value chain, from upstream, with green energy production, to downstream, the end customers,” explained its director Emmanuelle Seen at the fund’s launch. More specifically, the manager integrates four dimensions into the fund: green energy production (wind, solar panels, etc.); Hydrogen related technologies (electrolyzer, fuel cells, etc.) and components; hydrogen production, storage and distribution; and end use by chips, cars or some industrial companies… This fund presents sectoral biases (in industry, energy, materials…) and geographic biases in favor of Europe and Asia.
5 / Digitization, still of interest
Technology stocks have surged in recent years, but have struggled hard since January. However, the topic of digitization retains all its appeal, as the process seems inevitable. It can cover different subtopics, because managers have fine-tuned their approach. Thus, Pictet AM emphasizes the need for IT security, through its Pictet Security Fund. Pléiade AM Store just launched a niche strategy for B2B cloud companies (PAM Cloud Revolution). The cloud “benefits from accelerating corporate digitization, still in its infancy,” the management firm estimates. Other interesting proposals: The Echiquier Artificial Intelligence Fund, which invests in companies that participate in or benefit from the development of artificial intelligence.
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Sensitive souls abstain: Fund performance is volatile: +79% in 2020, +8% in 2021 but – 44% since the beginning of 2022! Finally, Edmond de Rothschild AM offers a big data solution, with a defensive profile, which relies on transforming specific business models associated with data intensive use.
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