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- 10 themes for the year ahead
The good news first: you probably don't need to turn your portfolio upside down right now. The ten topics I would like to present to you here are not the hottest stock-market tips for the start of 2024, but topics that we believe will be relevant for investors in 2024 and beyond. They might help to provoke some immediate investment ideas. But, above all, what we want to do is provide you with some longer-term food for thought.
Take the topic of "female finance," for example. This is not about designing products specifically for female investors. Rather, it is about how a team of different sexes and from different backgrounds is not an optional extra but an obligation in asset management. A diverse team is essential if you want to manage funds responsibly – i.e., achieve an optimum balance between risk and return – and avoid groupthink.
Fundamentally, this is also what the Electrification, Quality, Artificial Intelligence (AI), and Cryptocurrencies articles in our 10 Themes are about. Ultimately, they all deal with the recurring challenges and typical cognitive traps that investors can fall prey to – how successful incumbents in an industry can quickly become laggards; why a company’s quality cannot be judged merely on the basis of its numbers; whether artificial intelligence might itself help asset managers choose between digital winners and losers in the stock market. (Spoiler alert: we think humans will continue to make the difference, but AI can greatly improve the basis for decision-making).
The last of the topics mentioned above, cryptocurrencies, is also ultimately about rethinking old ways of thinking. And perhaps to see precisely in those investments, such as Bitcoin, an opportunity to obtain some partial protection against “unknown unknowns” in the portfolio. This would be tantamount to an accolade for an investment that is more easily than any other accused of having no intrinsic value. We advocate a pragmatic and cautious approach to these instruments.
On the other side of the risk spectrum are bonds. After two bad years and one mixed year, we think that 2024 could be the year for bonds. In light of our expectation that we won’t see a severe recession that would jeopardize creditworthiness, starting the year with high bond yields and falling inflation could be the ideal environment for bond investments.
From interest rates it is only a small step to the real-estate sector, which has suffered and continues to suffer like few others from the big rise in rates. In fundamentally healthy submarkets, however, this could offer good entry opportunities. For our economy and environment, we believe it can never be too early to enter or expand the circular economy. Only 7% of all materials used in industry are currently recycled.[1]
Finally, let's take a look at perhaps the most exciting region at the moment from our viewpoint: Asia-Pacific. Here, in a range of diverse countries, you can find many positive developments – from high population growth, a wealth of raw materials and expanding middle classes to established industrial nations and global dominance in some sectors. India stands out due to its combination of size, demographics, widespread use of English and progress in its reforms. In our view, the Asian region also has an important role to play in investment portfolios as a counterweight to the stock-market dominance of the U.S.
I hope that with this publication we can arouse interest in some of the topics that we consider very exciting. Now, at the turn of the year, is a good time to reflect on which topics we have over- or underestimated in the past year. Even when using an abundance of human and artificial intelligence, the markets always supply surprises. But that is ultimately what makes dealing with capital markets so appealing. It is important, however, to know the limits of one’s knowledge and where risks should be avoided. Our ten themes may help make this a little more tangible.
