Credit Suisse has updated its original five high conviction mega investment trends and introduced a new theme — climate change — against the backdrop of the unprecedented global pandemic.
Launched three years ago, Credit Suisse’s ‘Supertrends’ focus on five long-term investment themes which are believed to outperform the overall market. “That said, the key societal, political, economic and environmental issues they touch upon are in continuous flux,” the bank explained, “and today’s updated Supertrends consider the changes brought about by the COVID-19 pandemic.”
Nannette Hechler-Fayd’herbe, chief investment officer for international wealth management (IWM) and global head economics & research at Credit Suisse said in a press call today that since inception, the five Supertrends — anxious societies, infrastructure, technology at the service of humans, silver economy, and millennials’ values — have generated “strong positive returns” and they have significantly outperformed overall global equities.
In addition, the year-to-date market volatility shows the resilience of the five Supertrends, she pointed out, adding that although all Supertrends have generated a negative absolute return this year due to the turbulent investment environment, on a relative basis four of the five themes have been outperforming global equities: silver economy (+12.2%); technology (+9.4%); millennials’ values (+7.5%); infrastructure (+3.3%).
Daniel Rupli, head of single security research, equity and credit at the bank told Asian Private Banker that apart from identifying mega themes and subthemes, identifying stock winners within those investment ideas is of importance too.
He said that the bank has a database of over 2,000 stocks, and the bank’s private banking and global market research teams work together on the basis of subthemes to screen and select them using a series of quantitative and qualitative approaches.
Hechler-Fayd’herbe cited the technology theme as an example. “For any given Supertrend identified — for example “Technology at the service of humans” — we screen the exposure of companies to the specific aspects of the Supertrend and analyse their fundamentals,” she said.
“To this end, a particular focus on those companies with strong revenue growth drivers and value creation potential over the long term horizon is selected.”
Michael Strobaek, global CIO for Credit Suisse, commented on the necessity to refresh Supertrends. “Our normal way of life has ground to a halt because of the coronavirus pandemic,” he said.
“This crisis is challenging existing systems and structures, sowing the seeds for further change ahead, as we uncover limitations in how we learn, work and live. Our Supertrends continue to evolve with the changing world around us, and we believe that they remain compelling investment themes for today and the future.”
The updated long term investment themes are as follows:
Climate change – Decarbonising the economy
This is focused on companies that contribute most effectively to the transition to a less carbon-intensive world economy.
Rupli highlighted that the recent economic lockdown of countries and cities has substantially reduced man-made greenhouse gas emissions in several regions. It provides a clear signal of what the world could achieve in the future by creating a carbon-free and more sustainable global economy.
The key sectors that cover this investment trend include carbon-free electricity production, transportation, oil and gas transition pioneers, and agriculture/food production.
Anxious societies – inclusive capitalism
The bank has changed the name from last year’s “Angry societies” to “Anxious societies” as it believes social anger has now “ceded to anxiety”. It said the COVID-19 pandemic has shown that the real emerging threats are global and require multilateral cooperation, as well as individual protection. Key sectors within this theme include those that cover employment, life learning, and personal security.
Infrastructure – Closing the gap
Credit Suisse said the expectation of low interest rates for the long term bodes well for infrastructure investments. Yet, there are numerous infrastructure gaps as old economies struggle to address both existing and new needs, including a drive towards greater sustainability. This theme includes transport, energy & water, and smart cities.
Technology at the service of humans
Credit Suisse notes ongoing technological innovation, as well as the challenges and opportunities unveiled by the COVID-19 crisis continue to make technology a compelling sector. Key sectors investors can look at are digitalisation, health-tech, industry 4.0, artificial intelligence and virtual reality.
Silver economy – Investing for population ageing
The bank believes the ageing population is likely to continue to drive both investment opportunities and performance over the long term, and this phenomenon will unfold “at a speed not yet realized by most” in emerging markets. This theme includes therapeutics & devices; care facilities; and health & life insurance.
This theme includes responsible consumption, and the bank applies an environmental, social and governance (ESG) overlay to the entire stock selection.
“With health also at the top of the Millennials’ agenda, there is growing demand for healthy, sustainable food,” the bank noted, calling this “the planetary diet”.
“Hence, along with the transition to a circular economy, we have incorporated sustainable food into this investment topic.”