Charles Stodart, Investment Specialist at Zurich Investments
Speak to any investor about global equities and the Technology sector will surely feature large. And so it should, if you are talking about the last decade. In terms of benchmark weight, the Technology sector has become an 800 pound gorilla, muscling up from a little over 10% at the end of 2009 to well over 20% today*. As with any apparent obsession, the story is compelling, but can it really justify the extent of the current market concentration?
While Technology has been the toast of the last decade, can it really continue to be the sole story for the next decade as well? If you were to think about a framework of relevant, secular drivers that are likely to impact over the next decade, what else might you include?
Geopolitics, for example, has moved to a far more fragmented and less stable condition. It has started to be a meaningful factor at both the national level and the global level – you only have to think of the de-globalisation frictions caused by the trade war and more recently exacerbated by the coronavirus pandemic. The rules of the game appear to be changing for the corporates that are participating on a global playing field.
Sustainability is another factor that is fast becoming mandatory for any long-term investor. There are many non-financial externalities that society as a whole, investors and companies themselves need to deal with today. In this category, coronavirus is merely the latest externality where corporate management ought to think about the impact of their decisions on all stakeholders and not just financial stakeholders. Companies will increasingly need to prove their societal license to operate within this evolving landscape.
Finally, monetary policy has become a real issue for consideration as monetarism, in its current form, may be nearing the end of its useful life. Monetary systems can last for a long time – the current one for 40 years – but they become challenged when the unintended consequences start to outweigh the benefits. Negative interest rates and asset values that are high relative to the real economy may be signs that we are approaching an unsustainable extreme.
The next decade may be more of a blend of these four structural drivers; Technology, Geopolitics, Sustainability and Monetary Policy. They may dramatically change the landscape for corporates but they are also key structural and secular changes that are likely to drive investment returns over the next 3-10 years. Investors may want to consider a framework that embraces these key issues.
Zurich recently hosted a webinar with Steve Wreford and Nick Bratt, portfolio managers of the Zurich Investments Global Thematic Share Fund, where they explored their Global Framework in more detail and how they put it into practice. The webinar is now available on our adviser education platform _ZONE via the link below: