Investment

Themes 2024
CONTENTS

A year of extremes and exaggeration p. 2

1/ Reaping real returns p. 4
2/ Winners in a multipolar world p. 6
3/ Decarbonisation and Electrification p. 8
4/ Democratising AI p. 10
5/ Diversifying beyond the 60:40 portfolio p. 12
6/ Demographics: the wellness revolution p. 14

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 A year of extremes and
exaggeration
Absorbing regime changes from the 2020-22 period
2023 was a year when we finally saw inflation rates fall from
historic highs. Stock markets managed to advance on the back of
a surprisingly resilient global economy, in the face of short- and
long-term interest rates rising to multi-decade highs.
The highest interest rates in 15 years continue to have
huge lagged knock-on effects across the global
economy – on real estate prices and on corporate
investment. But there are also some beneficiaries
of higher interest rates of course, notably savers
who can now take advantage of attractive
risk-free rates of return not seen since the 2008
Financial Crisis.

Key trends in focus for 2024

We believe that there are a select few trends that
investors should keep front of mind when looking
to the new year:
The impact of far higher interest rates have not
yet been fully reflected in (lower) economic
growth and inflation rates, above all in the US.
Moreover, central banks continue to repeat their
mantra of “higher for longer”, suggesting that
they will not reduce interest rates until they are convinced that
inflation will not flare up anew.
The shift away from globalisation and towards national interests
will continue, potentially triggering shortages of raw materials
and goods. This shift is also powering near-shoring and re-shoring
of manufacturing production in order to reinforce supply chains,
especially of key strategic industries, such as semiconductors.
Energy transition momentum continues to accelerate, propelled
by a 2023 summer that was the hottest on Earth since records

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began in 1880. Insufficient progress on climate goals up to now,
and an increased emphasis on energy security are obliging global
governments to commit huge financial resources to reduce our
reliance on fossil fuels.
Lifestyles have changed probably permanently following the
2020 pandemic: more and more, people are putting working at
home or free time on an equal footing with financial compensation.
This is having a profound impact on patterns of consumption,
as well as on the ongoing demand for office space in big cities.
New obesity treatments: the arrival of effective medicines from
Novo Nordisk and Eli Lilly to treat obesity promises potentially the
biggest improvement in average longevity since global campaigns
to persuade smokers to quit were promoted in the 1970s and
thereafter.
Global stock market leadership has become extremely focused
on a very narrow set of mega-cap technology stocks - representing
a growing concentration risk in supposedly diversified investment
portfolios. The warning signs from the 1970s Nifty Fifty and
the 2000 technology bubble seem to be echoed in today’s Artificial
Intelligence mania, centred around just 7 US tech stocks.
These key trends are the driving forces for the 6 investment themes
we outline in this report. Our Reaping real returns theme underlines
the income opportunities in fixed income markets; Winners in
a multipolar world explores the shift towards national interests;
and Decarbonisation and Electrification addresses an accelerating
energy transition.
Democratising AI is our plea for investors to look beyond the
Magnificent Seven tech stocks to benefit from the generative AI
trend; Diversifying beyond the 60:40 portfolio highlights the need
for investors to include more than just stocks and bonds for true
diversification; and Democratics: the wellness revolution focuses
on opportunities resulting from new weight-loss drugs.

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 1 /
Reaping real
returns
4
 Since the end of 2021, the interest rate world has undergone
a seismic shift with central banks abandoning zero interest rate
policies, and government bonds suffering their biggest jump in
yields and falls in price since the late 1970s.
Investors today are faced with an expanding choice of seemingly
attractive income opportunities, both in the fixed income asset class
and elsewhere. However, what was judged safe up until 2022 may
not be so secure in future, given rising debt costs, and thus
concerns over long-term debt sustainability.
Positioning to profit from real bond yields (excluding inflation)
that are the highest since at least 2011 is also an attractive choice
for conservative investors, in order to lock in a generous inflation-
protected level of income for the next few years.

OUR RECOMMENDATIONS

A cross-asset theme: Sovereign and Corporate Bonds,

Infrastructure, Equities, Structured Products.
 Sovereign bonds: US Treasury Inflation-Protected
bonds, US sovereign bond funds and ETFs.
 Corporate bonds: US and euro investment-grade
credit.
KEY RISKS
 Infrastructure: diversified infrastructure funds
with growing yields, energy infrastructure funds
and ETFs.  An unexpected inflation increase, leading central
banks to reconsider the outlook for monetary
 Structured products: high income solutions based policy.
on corporate credit.
 A resilient American consumer who defies any
odds of economic slowdown.
 Interest rate risk: when interest rates rise, bonds
go down in value.
 Liquidity risk: some long-term investments can be
fairly illiquid.

5
 2 /
Winners in
a multipolar
world

6
 The world exited a 30-year post Cold War period when the United
States was the only clear global superpower in a largely unipolar
world. Today, we are confronted instead with an emerging
multipolar world, where a number of countries vie for global
political and strategic leadership.
Replacing relative global stability is a period of greater geopolitical
instability and uncertainty. The pendulum has swung towards
nationalist and near-shoring trends, away from free markets and
globalisation. Security of strategic resources is the new imperative.
Pockets of raw material and worker scarcity have emerged from
a prior environment of abundance of manpower, raw materials and
energy. We look to identify emerging trends, sectors and countries
that stand to benefit in this new multipolar world.

OUR RECOMMENDATIONS

A cross-asset theme focusing on Equities, Bonds and

Commodities.
 Productivity-improving products and services
as companies seek to offset increasing wage
pressures through the greater use of technology
to replace human effort. KEY RISKS
 Near-shoring: investment in robotics and
automation in new production facilities.  Production costs and thus the price of the energy
transition are rising sharply. Without strong
 Growing importance of “middle power” countries:
government support, the transition could slow
India as a key multipolar beneficiary; the growing
down, given that many countries are heavily
importance of key producers of strategic
indebted and the cost of debt rocketed in 2022.
commodities including Brazil, Mexico, Indonesia
Very tricky fiscal and societal choices must be
and Australia.
made.
 Technology security: cybersecurity, semiconductors,
 Today it is still difficult to source essential
satellite technology and networks.
materials and components. This is particularly
 Food & water security: more effective water the case for areas (e.g. lithium) in which demand
irrigation and clean water production, fertilisers & is growing rapidly because supply is struggling to
technologies to boost crop yields, companies which keep up with the pace of demand. This could
combat food waste. hamper the transition.
 Critical battery metals: metals and associated  Generally speaking, energy is a cyclical sector.
miners necessary for electric vehicles and for Energy prices fluctuate considerably in tandem
large-scale industrial electricity storage. with economic growth, but also with geopolitical
events that are often unpredictable and
uncontrollable. Return on investments can
therefore be highly volatile and sometimes lower
than expected.

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 3 /
Decarbonisation
and Electrification
8
 Since the record temperatures reached over the summer of 2023,
the pressing need to decarbonise the global economy has gathered
pace. The key to energy transition is electrification – allowing us to
gradually move away from a dependence on fossil fuels. Attractive
economics, rising social acceptance and growing policy support
should help incentivise the heavy necessary upfront investment in
electric infrastructure including power generation, transmission and
storage.
The continued trend towards electric vehicles for logistics and
personal transportation requires heavy initial energy investment
first to produce the necessary raw materials, and then to transform
them into finished products such as cars, cables and solar panels.
Energy efficiency is also a key focus in this transition effort, as it
remains far cheaper to economise energy than to produce it.

OUR RECOMMENDATIONS

A cross-asset theme: Equities, Bonds, Infrastructure

and Commodities.
High-voltage electrical equipment manufacturers
Energy: investment in critical energy infrastructure, KEY RISKS
smart grids.
 Higher for longer rates could continue to pressure
Insulation, efficient LED lighting thanks to valuations.
increasingly efficient materials.
 Increased supply from Chinese manufacturers
Smart control systems and software for lighting of equipment including solar panels and batteries
and signalling, smart glass. could result in ongoing margin pressure on
Production and storage of renewable energies Western companies.
(wind, solar, hydroelectric, etc.), including nuclear,  Any roll-back of political and financial support,
hydrogen. especially in the US, could lead to a significant
Technologies that capture or recycle carbon loss of incentives for investments in renewable
dioxide. energy solutions.
Critical battery metals: metals and associated
miners necessary for electric vehicles and for
large-scale industrial electricity storage.

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 4 /
Democratising AI
10
 The dramatic outperformance of seven US mega-cap technology
leaders, namely Amazon, Apple, Google, Meta, Microsoft, Nvidia and
Tesla, since 2020 and again in 2023 has resulted in a level of
concentration of global investment portfolios in these names that
has not been seen since the Year 2000 Technology bubble and
the 1970s Nifty Fifty phenomenon. In both cases, the groups of
“glamour” stocks that had been bid up to extreme valuations came
back down to earth over the following years, resulting in big drags
on investors’ portfolios.
We prefer to increase diversification of investor portfolios which are
potentially overexposed to these seven US technology giants.
In place of these seven, supposedly the leaders in the generative
Artificial Intelligence revolution, we look to identify sectors and
industries that can reap huge benefits from AI applications.

OUR RECOMMENDATIONS

A cross-asset theme: Equities, Bonds and

Infrastructure.
 World ex-US stocks including eurozone, UK, Japan, KEY RISKS
emerging markets (including or excluding China).
 Investment bubbles are notoriously difficult to
 Artificial Intelligence “picks and shovels” plays
time, and can go on for far longer than any
including semiconductors, cybersecurity, cloud
investor thinks possible. The “Magnificent Seven”
computing infrastructure plays, datacentre
stocks could conceivably continue to dominate
infrastructure and real estate.
for far longer than expected.
 Sectors that can see huge benefits from AI
including Healthcare, Professional Services and
Industrial Automation.

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 5 /
Diversifying beyond
the 60:40 portfolio
12
 The changing environment requires us to review how we construct
and diversify our portfolio. Long-term inflation levels and volatility
could remain high or increase more than the last 20 years.
Furthermore, we can no longer assume that the correlation
between long-term sovereign bonds and stocks (i.e. their reciprocal
behaviour) will remain negative. Inflation is eroding investment
returns, and hedging inflation volatility has become a new priority.
If the diversification benefits of bonds are lower in the future than
over the past two decades (especially when equities fall), investors
will need to consider which asset classes can really provide
additional diversification to broaden and optimise their portfolio.
In an ever-changing world, we like trend-following strategies,
commodities and market-neutral strategies which generate returns,
reduce risks and provide a hedge against inflation.

OUR RECOMMENDATIONS

A theme focused on alternative assets and solutions

outside of stocks, bonds and real estate.
 Trend-following and global macro alternative
UCITS and hedge funds.
KEY RISKS
 Long/short credit, equity, cross-asset alternative
UCITs and hedge funds.
 Depending on the structured solutions chosen,
 Listed and unlisted Infrastructure funds, ETFs. an increase, a decrease, or a change in asset
 Precious metals: gold, silver, platinum. prices could lead to a capital loss.

 Enhanced roll commodity funds, ETFs.  There is no guarantee that global macro or
trend-following strategies will benefit from
 Private equity based on an attractive long-term the current trends in asset markets. Furthermore,
risk-return trade-off. any sudden suppression of interest rates back
to zero could reduce opportunities.
 If inflation takes longer to peak and remains
higher for longer, gold may struggle and still have
negative returns given its lack of carry and inverse
correlation with higher real yields.

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 6 /
Demographics:
the wellness revolution
14
 The Healthcare sector underperformed in 2023 as attention shifted
to AI and the Magnificent Seven stocks. Today, as the economy
slows, the sector’s growth possibilities and defensive characteristics
may become more attractive.
“Demographics are destiny”. In fact, the share of the population
over 60 will double to 2.1 billion by 2050. In the context of this
ageing population, obesity has tripled in the world since the
mid-1970s. Moreover, COVID, ageing, and rising incomes have raised
awareness of wellness and how to increase people’s lifespans and
even more importantly, the number of healthy living years.
AI can reduce the cost of drug development and boost innovation in
the sector. Eating sustainably and healthily, wellness technology,
medical technology and innovation in pharmaceuticals including
weight loss drugs will create volatility, disruption and opportunity.

OUR RECOMMENDATIONS

Equities
Selected Pharmaceutical stocks
 Selected Biotechnology & Medical
Technology stocks
Health and Wellness:
KEY RISKS
–H
 ealthcare Technology
–H
 ealth & Sustainable Food Cuts to healthcare budgets from governments.

–S
 elected Nutraceuticals  Greater-than-expected numbers of drugs that fail
to receive regulatory approval.
–C
 onsumer and Service Companies that are
well exposed to the Silver surfers  Changes in healthcare regulation by major
governments especially after the upcoming US
elections (5 November 2024).
 Major recession that impacts spending on the
health and wellness sector.

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